New Zealand Dollar, FOMC, US Dollar, NZD/USD– Talking Points
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Wall Street moved sharply lower on Wednesday, as the Federal Reserve kept rates unchanged at 0.00-0.25% and reiterated its commitment to continue supporting the economic recovery. The tech-heavy Nasdaq Composite was the biggest loser, with a 2.61% decline. The S&P 500, Dow Jones Industrial Average and Russell 2000 indexes closed lower by 2.57%, 2.05%, and 1.91%, respectively.
Despite positive earnings from US companies over the last couple weeks, investors have been reassessing the robustness of the global economic recovery and its underlying drivers. This is as several new variants of Covid-19 spread across the globe. The mutated strains appear to be more contagious and perhaps deadlier, which has government officials concerned over increased mortality and infection rates.
In-line with the broad risk aversion permeating global markets today, the safe-haven US Dollar gained against its major peers, with the DXY index climbing over the 90.5 handle. In turn, gold and silver prices moved lower despite the Fed stating it intends to continue bond purchases at the current pace of $120 billion a month. Market participants may be discouraged in the Federal Reserve’s “wait and see” approach after the central bank took decisive and aggressive action last year.
S&P 500, US Dollar, Gold – 5-Min Chart
Chart created with TradingView
Thursday’s Asia-Pacific Outlook
The risk-off slide looks set to continue into Thursday’s Asia-Pacific trading session, although downside momentum may ease. Asian equity index futures are pointing mostly lower following the bout of volatility seen on Wall Street. Wednesday saw Hong Kong’s Hang Seng index close 0.32% lower, while mainland China’s Shanghai Composite managed a small 0.11% gain.
Thursday’s economic calendar saw Japan’s retail sales for December at -0.3%, down a full percentage point from the month prior. The focus remains on the upcoming US advance GDP release for the fourth quarter, scheduled on Thursday. According to the Finance Prop Economic Calendar, the headline figure is expected to be 4.0% on a QoQ basis.
Outside of any unexpected developments, sentiment may continue to languish across markets. Appetite for US government bonds has picked up, a universal sign that investors are seeking out safety. The 10-year Treasury yield is down 5 basis points over the last 24 hours, extending its drop from multi-month highs set earlier this month.
Elsewhere, risk-sensitive currencies are trading lower as the comfort of the US Dollar attracts safe-haven flows. The New Zealand Dollar, Australian Dollar, and Japanese Yen are depreciating against the Greenback, with the Kiwi seeing the largest declines. The growth-linked Canadian Dollar is also under pressure, with USD/CAD rising. NZD/USD losses are extending lower after the cross dropped over 1% Wednesday.
New Zealand Dollar Technical Forecast
The Kiwi’s drop against the US Dollar broke below the 0.7200 psychological level, along with the 38.2% Fibonacci retracement from the December – January move. The MACD oscillator indicates further downside may be likely as it approaches its zero line. Moreover, the Relative Strength Index is also trending lower amid the weakness in NZD/USD.
The 61.8% Fib level or the rising 50-day Simple Moving Average may offer levels support, but a breach below those levels will open up 0.7096, which is the 2021 low. Losses could accelerate if the yearly low gives out, possibly reversing the longer-term bull trend from March 2020.
New Zealand Dollar – Daily Chart
Chart created with TradingView
NZD/USD TRADING RESOURCES
— Written by Thomas Westwater, Analyst for Finance Prop.com
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