NZD/USD flatlines in 0.6750 area after printing YTD lows as Fed looms

NZD/USD has spent the majority of Tuesday's session trading sideways in the 0.6750 area, with a hotter than expected US Producer Price Inflation report failing to provide a boost to the pair in the run-up to Wednesday’s Fed meeting. The data should seal the deal for the Fed to announce a hawkish pivot on its QE taper timeline and outlook for rate hikes, but expectations heading into the meeting were already very hawkish even prior to the release of the PPI report.

Notably, NZD/USD did print a fresh annual low during Asia Pacific trade on Tuesday, dipping under the 6 December lows at 0.67366 to hit 0.67353. It seems likely that any meaningful push lower on towards the next area of support around 0.6700 will have to wait until after the conclusion of the Fed meeting, as trading conditions enter wait-and-see mode. The pair’s failure to sustain a rally back above 0.6800 was telling that the recent bear-run that has seen it drop nearly 6.0% since the start of November isn’t yet over and a hawkish Fed plus more strong US data this week could cement this.

New Zealand GDP data in focus

But focus will also be on the NZD side of the equation this week with a few key data points due. Later during Tuesday’s session, ahead of the start of the Wednesday Asia Pacific trade, RBNZ Governor Adrian Orr is slated to speak at 1900GMT ahead of the release of New Zealand Q3 Current Account data at 2145GMT. Then, Q3 GDP growth data is due during Thursday’s Asia Pacific session, with a 4.5% QoQ contraction expected given the harsh lockdowns imposed for much of the quarter.

Given that this lockdown was temporary in nature and did not seemingly have any negative impact on the labour market or inflation, it won’t alter the RBNZ’s stance that gradual monetary tightening over the coming years is appropriate. Indeed, some strategists have noted that if the recession in Q3 wasn’t as bad as feared, this could have hawkish implications for RBNZ rate-setting decisions in the coming months. Whether that would be enough to turn the bearish tide weighing on NZD/USD is another thing.