NZD/USD: On the back foot amid trade uncertainty, NZ government budget in focus

• NZD/USD struggles for direction after two consecutive daily declines.
• Mixed signals concerning phase-one troubled the pair off-late.
• New Zealand government’s Half-Year Economic and Fiscal Update, Budget Policy Statement in the spotlight.

NZD/USD trades around 0.6545 at the start of Wednesday’s Asian session. The pair have been struggling off-late amid uncertainty surrounding the phase-one deal between the United States (US) and China. The pair traders are also cautious ahead of the New Zealand (NZ) government’s Half-Year Economic and Fiscal Update (HYEFU) and Budget policy, specifically concerning the infrastructure spending.

The NZ government is all set to release its mid-year projections and fiscal updates with eyes on infrastructure spending that has recently fuelled the kiwi pair. Ahead of the scheduled release on 00:00 GMT on Wednesday, the Minister of Finance has signaled “significant boost to infrastructure spending”.

While the Wall Street Journal’s (WSJ) report, coupled with trade-positive comments from the US diplomats, renewed hopes of no new US tariffs on China on December 15, the White House Adviser Larry Kudlow poured cold water on the optimism. As a result, market players stay in the limbo and await fresh direction.

On the other hand, the US data painted a gloomy picture of the third quarter (Q3) Nonfarm Productivity and Unit Labor Costs with NFIB Business Optimism Index beating forecasts.

As a result, the US 10-year treasury yields recovered two basis points to 1.84% but Wall Street closed mildly negative by the end of Tuesday’s session.

Although trade headlines will keep the driver’s seat ahead of December 15, the immediate market focus will be on the NZ infrastructure spending details followed by the US Federal Reserve (Fed) meeting.

Concerning the NZ HYEFU, the Australia and New Zealand Banking Group (ANZ) says, “Like many others, we’ve been pointing out for some time that a lack of infrastructure spending this past decade, alongside strong migration-led population growth, has resulted in an infrastructure deficit that has become a significant headwind to economic growth and productivity.  But given the current state of the economy, and in particular, with capacity pressures biting in the construction sector, it will be challenging to implement new initiatives as quickly as the Government might hope. Overall, we think the Government could comfortably bump up spending by $5-15 billion, but it might want to hold something back for Budget 2020 and the 2020 election.”

Technical Analysis

200-day Simple Moving Average (SMA) near 0.6540 acts as immediate key support ahead of November month high of 0.6466. On the upside, buyers will look for entry beyond the monthly top surrounding 0.6575/80.