- NZD/USD underperformed on Wednesday, despite a lack of any specific negative kiwi fundamentals.
- The psychological 0.7200 level acted as a floor to the price action.
NZD/USD underperformed on Wednesday, despite a lack of any specific negative kiwi fundamentals and a broadly softer US dollar, closing the session down about 0.4%. Most of the selling pressure come in during the early part of Wednesday’s European session when the pair dropped from above the 0.7240 mark to under 0.7210, close to where NZD/USD continues to trade now. The psychological 0.7200 level acted as a floor to the price action on Wednesday and will be a key area to watch as the Asia Pacific session gets underway.
New Zealand Electronic Card Retail Sales data for January was recently released and did not seem to have too much of an impact on NZD price action; sales fell 0.4% MoM, a slight drop in the rate of contraction after December’s 0.6% MoM contraction, while the YoY growth rate of sales remained positive but fell back from December’s 3.5% to 1.9% in January.
Driving the day
NZD/USD was unable to take advantage on Wednesday of softer than expected US Consumer Price Inflation numbers, which, according to ANZ, “are a reminder of the difficulties the Fed will experience in getting inflation up”. With regards to the implications this will have for Fed policymaking decisions going forward “the Fed have made it clear that they will be patient with monetary accommodation to ensure that inflation picks up… and inevitably, Powell will need to reiterate that again”.
Contrasting this to the situation that the RBNZ finds itself in, the bank comments that “the RBNZ arguably face quite a different communication challenge, with the demand pulse in New Zealand in a much better position than anyone dared hope…. The RBNZ will welcome this, but continue to highlight the need for cautious patience.” However, the bank notes that medium-term challenges to the outlook remain and, as such, “the RBNZ will need more assurance that its targets are firmly in view… (and) will want to acknowledge the good news for what it is, but not signal imminent tightening and unravel recent progress”.
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