- NZD/USD testing the vicinity of the 0.60 figure, but dollar too strong.
- Fed and RBNZ divergence driving force in play.
NZD/USD has been challenged mid-week following a double whammy from the Reserve Bank of New Zealand and the Federal Reserve. At the time of writing, the bird is attempting to claim back the 0.60 handle. However, the US dollar is probably too strong for it in the current ecosystem of geopolitics, financial and commodity markets.
NZD/USD has been on the back foot, for the most part, trading at 0.5997 currently having travelled from a high of 0.6098 to a low of 0.5997. Yesterday, the RBNZ expanded QE to $60bn as expected and today, Adrian Orr signalled that QE remains the tool of choice as opposed to negative rates. However, negative rates remain an option which is setting the divergence between the Fed and RBNZ, favouring the downside in NZD/USD.
Powell reiterated that negative rates are not something the Fed is looking
Early in the US session, Fed’s Chair Jerome Powell was speaking about the US economy at an event organized by the Peterson Institue for International Economics. Powell’s comments fueled a spike in the US dollar on Wednesday, further adding to the bearish case for NZD/USD. Powell explained that the FOMC’s view on negative rates has not changed and reiterated that it’s not something the Fed is looking at.
“The Fed intends to continue using tools it has already tried,” Powell said in answer to questions at an event organized by the Peterson Institue for International Economics.
Previous minutes on negative rates debate says all FOMC participants were against them
Meanwhile, for today, we will have the Budget which will reveal the outlook for the Government’s books and bond issuance. “It’s not going to be pretty, with widening deficits and debt spiking higher. We expect net core Crown debt will lift to 40-50% of GDP. This could see total bond issuance lift to around $145bn over the next few years, with $45bn of this in the 2020/21 fiscal year. Total issuance is expected to be $100bn higher than previously indicated,” analysts at ANZ Bank explained.