Behind the Moves in USD and NZD

The U.S. dollar is trading higher against the euro and Japanese Yen this morning but that is the extent of the currency's strength because the greenback continues to weaken versus the British pound and commodity currencies. This morning's economic reports failed to provide much momentum for the dollar even though the releases were mostly positive for the U.S. economy. Weekly jobless claims dropped to its lowest level since November, a sign of continued improvement in the labor market. Fourth quarter GDP growth was revised up to 2.6% from 2.4%. While this was weaker than economists had projected, personal consumption was revised sharply higher to 3.3% from 2.6% and exports rose by the strongest amount since 2010. Although investors did not respond to these reports, the Federal Reserve will be happy to see further improvement in the economy. Pending home sales are scheduled for release later this morning but the impact on the greenback should be nominal. If traders want to see a breakout in USD/JPY, they will have to wait for next week's ISM and non-farm payrolls reports.

In the meantime, the best performing currency today is the New Zealand dollar, which rose to its strongest level against the greenback since August 2011. Last night's better than expected trade numbers kept the currency bid but the main catalyst for the move were the comments from RBNZ Deputy Governor Spencer. Like the Australian dollar, currencies are responding more to comments policymakers than economic data. Spencer said the lack of loan limits "may have prompted monetary policy tightening to have started somewhat earlier." He believes the central bank is happy with the current policy framework and while NZD/USD appreciated more than 7% over the past 2 months, Spencer did not express any renewed concerns about the currency. Instead he said exporters have adjusted to the high exchange rate, which suggests that they don't plan to slow tightening or intervene in the currency as a result of NZD strength.

If NZD/USD ends the day above its April 2013 high of 0.8676, there is no major resistance for the pair until its 2011 high of 0.8842.