NZD/USD holds tight near 0.6735 ahead of critical events

NZD/USD is trading in a tight range ahead of the Federal Reserve today and was unmoved by the Chinese data dump that featured s the main scheduled event for Asia on Wednesday. At the time of writing, NZD/USD is trading between 0.6732 and 0.6742, flat on the day. 

The markets are going through today's New Zealand’s Half-Year Economic and Fiscal Update for 2021. 

An extract of the document explained that the ''combination of supply chain disruptions and strong demand has seen capacity pressures intensify, contributing to higher inflation. Consumers Price Index (CPI) inflation is forecast to peak at 5.6% in the March 2022 quarter, significantly higher than the peak expected in the 2021 Budget Economic and Fiscal Update (Budget Update), before trending down.

As a result, interest rates are expected to rise faster and to a higher level than forecast in the Budget Update. Higher inflation is a major contributor to higher nominal GDP over the forecast period compared to the Budget Update.''

As for the labour market, it states that '' the outlook has continued to improve since the Budget Update. The unemployment rate is expected to fall to 3.1% in the March 2022 quarter before slowly increasing to 4.1% by the end of the forecast period. This continued tightness in the labour market, together with higher CPI inflation is expected to maintain wage inflation above 4.0% throughout the forecast period.''

Meanwhile, the Kiwi is consolidating ahead of the FOMC decision and third-quarter Gross Domestic Product.  ''Volatility feels more likely than a genuine shift in any trend, with markets seemingly more sensitive now to swings in generalised risk appetite than specific data, and GDP data in particularly likely to be as much noise as signal,'' analysts at ANZ bank explained. ''Nonetheless, for now there does seem to be some support below 0.6750; let’s see if that lasts.''