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  • NZD/USD has bounced from lows in the 0.6950s but is struggling to reclaim the 0.7000 level amid a buoyant buck.
  • The pair continues to feel the weight of this week’s housing announcement from the NZ government.

NZD/USD is off 0.6950ish lows but continues to struggle to reclaim the psychologically significant 0.7000 level which is now acting as resistance having acted as a solid area of support throughout the month of December. On the day, the pair trades lower by a modest 0.1%, but on the week, losses are closer to 2.5%. Even though the week is barely past its halfway point, NZD/USD is already set for its worst week of losses since last September.

As a recap, this week’s losses have a lot to do with a strong pick up in the US dollar that has on Wednesday seen the Dollar Index (DXY) rally to fresh yearly highs above the 92.50 mark. However, the losses arguably have even more to do with the fact that the New Zealand government’s unveiling of a new NZD 3.8B housing fund is being seen as taking pressure off of the RBNZ when it comes to getting house prices under control and, as a result, money market pricing for RBNZ interest rate expectations has become more dovish – this explains why the kiwi is underperforming its other non-USD G10 counterparts by such a large extent on the week (AUD is down 1.5%, CAD is down 0.4%, GBP is down 1.0%, EUR is down 0.6% on the week versus the buck).

Driving the day

NZD/USD continues to suffer amid the above-mentioned bearish hang-over, despite a lack of any fresh updates out of New Zealand regarding government housing or economic policy, the RBNZ or the economy aside from February trade data (released during Wednesday’s Asia Pacific session) that was broadly ignored. Thus, the pair has and is likely to continue to trade as a function of USD flows; the buck has been grinding higher on Wednesday amid a somewhat mixed tone to broader trade. Markets are still cautious amid the overhang of concerns regarding lockdowns in Europe and negative headlines/developments relating to China and the West.

Perhaps the most important event for the remainder of the week will be US President Joe Biden’s first press conference as President on Thursday at 17:15GMT. Markets will be on the lookout for more information regarding the next fiscal stimulus package, following varied reports this week suggesting it could be between $3-4T in total size. US Core PCE inflation (the Fed’s favoured gauge of inflation) released on Friday will also be of note.

US data in focus

The February Durable Goods Orders report (released at 12:30GMT) was much worse than expected, with the MoM growth in orders dropping 1.1% versus forecasts for an increase of 0.8% and the core orders down 0.9% versus forecasts for an increase of 0.6%. Hard data for the month of February has thus far been much softer than expected (recall retail sales and industrial production both also disappointed expectations). Wells Fargo attributes the poor weather last month as one factor contributing to Wednesday’s disappointing Durable Goods data, but sees ongoing supply chain bottlenecks, which are restraining new orders, as a key problem. However, the bank still expects a strong rebound in business spending this year.

Elsewhere, the preliminary US Markit PMI survey has been released and was very strong as expected; the manufacturing index rose modestly to 59.0 from 58.6 last month and the services index was in line with expectations at 60.0, an 80-month high, according to Markit. According to IHS Markit’s chief economist Chris Williamson, “Another impressive expansion of business activity in March ended the economy’s strongest quarter since 2014. The vaccine roll-out, the reopening of the economy and an additional $1.9 trillion of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multi-year highs”. However, Chris adds that “producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays. Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey’s history”.