The New Zealand dollar has started the week in negative territory. NZD/USD is down 0.50%, and is trading at 0.6825 in the North American session. The currency enjoyed its best week since August 2021, with gains of 1.75%. The war in Europe has drained risk appetite, but the kiwi, although sensitive to risk, is also a commodity-based currency, and has moved higher on the wings of soaring commodity prices.
New Zealand releases Manufacturing Sales for Q4 on Tuesday. After a weak Q3 release of -2.2%, a positive reading could give NZD/USD a boost.
The war in Ukraine has understandably taken over the news, overshadowing the economic calendar. Still, investors are also keeping an eye on key releases, and among the most important are US nonfarm payrolls. The news was good on Friday, as February NFP outperformed with a strong showing. The economy created 678 thousand jobs in February, crushing the consensus of 400 thousand and above the January reading of 481 thousand. The unemployment rate fell to 3.8%, down from 4.0%. With workers in short supply, pressure on wages will continue, and the Fed is likely to respond with a cycle of rate hikes, starting in March.
Inflation continues to accelerate, and there had been talk of the Fed taking a drastic measure and imposing a half-point rate hike. However, the war in Ukraine and the stunning rise in oil prices has led to central banks showing an abundance of caution in this turbulent economic landscape. The CME’s FedWatch is projecting a 94% likelihood of a 25-basis point rise at the March meeting. This will mark the liftoff of a rate-tightening cycle, as the Fed moves toward normalization.
The US releases CPI on Thursday, which is projected to hit 8%. A release within expectations will raise pressure on the Fed to align their timeline more closely with market expectations of six rate hikes this year. The Fed was slow to react to high inflation and faces a real challenge in raising rates enough to bring inflation down to manageable levels without choking off the recovery.
- 0.6803 is a weak support line and could be tested during the day. Below, there is support at 0.6733
- There is resistance at 0.6931 and 0.7000
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