NZD/USD shying away from post RBNZ highs

The NZD/USD is faltering on the bid into the last session for the week in Asia following US data that continues to keep the DXY bid in the 99 handle. The coronavirus is also playing into the hands of the NZD bears although the commodity complex as a whole is robust on a technical basis on the charts – copper and CRB index meeting resistance structure. 

At the time of writing, NZD/USD is trading at 0.6440, subdued between a range of 0.6467 highs and 0.6428 owing to the uncertainties surrounding the coronavirus and a firm US Consumer Price Index outcome which puts the post-Reserve Bank of New Zealand's MPS gains in jeopardy on a sustained break below the 0.6440s. 

US CPI MoM misses the mark but is enough to support the US dollar

First and foremost, Headline CPI was rising only 0.1% MoM, below consensus expectations at 0.2%. However, as analysts at TD Securities explained, strong OER and rents kept the 12m change in core prices at 2.3%, which remains consistent with the pace for the Fed's preferred core PCE measure remaining below 2%.

"All in all, the CPI report details were stronger than expected. While core inflation remained steady at 2.3% y/y, shelter prices are worth watching closely in the next few months. Meanwhile, core PCE inflation continues to run below core CPI inflation. As of December, the core PCE index was up 1.6% y/y — versus 2.3% for the core CPI." 

The data shows the US economy is improving and supports the argument for the Fed to hold interest rates at current levels. Subsequently, the US 10-year yields were quick to move back of the worst levels of the day, ending on Wall Street around 1.6110% having travelled between 1.5620% and 1.6340% which has been supportive for the greenback through 99 the figure in the DXY on Thursday's US session.

Coronavirus in the driver's seat

As for the coronavirus, the news overnight that there were nearly 50k new coronavirus cases in Hubei province, a surge of 45% amid new image scans, has seen the market revert to a risk-off tone which is weighing on NZD.

The latest figures in the Hubei province reported 242 new deaths and 14,840 new cases of the flu-like virus. That brings the worldwide death toll to at least 1,357 and the number of confirmed cases to more than 60,000. The lift in cases was driven by a change in the way the disease is being diagnosed meaning a lift in both cases and deaths attributed to the disease. This created uncertainty and stemmed previous optimism that the disease may be peaking.

Casting minds closely back to the Reserve Bank of New Zealand:

• RBNZ says the overall impact of coronavirus on New Zealand will be of short duration. 
• RBNZ says risks that impact will be larger and more persistent.
• Members agreed that monetary policy had time to adjust if needed as more information on coronavirus became available.

NZD/USD levels