NZD/USD in wait-and-see mode just under 0.6700 level ahead of Fed meeting, key NZ CPI data

With FX markets having entered their typical pre-Fed policy announcement lull and the US dollar thus rangebound below recent highs, NZD/USD has been able to stabilise just below the 0.6700 level, comfortably above earlier weekly lows in the 0.6660 region. A slight improvement in the YoY rate of New Zealand Credit Card Spending growth to 1.2% in December from -0.4% in November, as revealed by data during the Asia Pacific session, didn’t trigger any notable FX market reaction. Nor did the latest US trade balance figures, despite the monthly trade deficit posting a surprise increase to nearly $101B in December versus expectations for a drop to $96.1B from $98.04B in November.

US dollar traders are unsurprisingly keeping their powder dry with the Fed expected to give the green light to multiple rate hikes in 2022 and offer up some more information on potential quantitative tightening plans. New Zealand markets also await the release of highly important domestic data during the early hours of the Thursday Asia Pacific session, with the Q4 2021 Consumer Price Inflation report due at 2145GMT. NZD has been unable to benefit from RBNZ hawkishness in recent months, with the bank hiking rates by 25bps on two occasions since October and expected to implement further hikes in 2022. But some might still hope that, should Thursday’s CPI data surprise to the upside, there might be room for hawkish RBNZ bets to bolster the kiwi.

Ultimately though, NZD/USD fate will most likely be determined for the rest of this week by USD flows and risk appetite, both of which have been mostly bearish for the pair in recent sessions. Indeed, NZD/USD fell under 0.6700 this week for the first time since November 2020 and, from a technical perspective, the door is open for a grind lower to the next key area of support near 0.6500. Some have warned that the US dollar might see some post-Fed profit-taking selling/a “sell the fact” reaction, which could offer some support to the pair and help it reclaim the 0.6700 handle.