Fundamental
Overview

The USD continues to
consolidate around the highs except against the commodity currencies where it
extended into new highs. The US inflation data last week was once again a
disappointment although the data that feeds into the Core PCE was overall
benign as forecasters expect a 0.13% M/M increase.

Nonetheless, the Treasury
yields have continued to climb and are now back around the post-US election
highs. There’s some understandable uneasiness in the bond market given the hot
US data and the Fed continuing to cut into an accelerating economy.

The Fed today is expected
to cut by 25 bps bringing the FFR to 4.25-4.50%. We will also get the updated
Summary of Economic Projections (SEP) where growth and inflation should be
revised upwards, and the Dot Plot will likely show two rate cuts in 2025. Fed
Chair Powell should acknowledge the strength in the US data and announce a
slowdown in the pace of easing.

This is already priced in
as the market expects just two rate cuts in 2025, with the first one coming in
March at the earliest. Therefore, the market reaction will be driven by
deviations from the expectations.

On the NZD side, the RBNZ cut interest rates by 50 bps as expected
recently. We haven’t got any fresh New Zealand data in the meantime, but the
market increased the chances for a 50 bps cut in February to 87% with a total
of 108 bps of easing by the end of next year.

NZDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that NZDUSD broke through the 2023 low around the 0.5773 level. There isn’t
any notable support
now until the 2022 low around the 0.55 handle. From a risk management
perspective, the sellers will have a better risk to reward setup around the trendline
to position for new lows, while the buyers will look for a break higher to
start targeting the 0.6050 resistance next.

NZDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have another minor downward trendline defining the current bearish
momentum. The sellers will likely lean on the trendline to keep pushing into
new lows, while the buyers will look for a break higher to target a bigger
pullback into the major trendline.

NZDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much else we can add here as the sellers will look for a rejection from the
trendline, while the buyers will look for a break to the upside. The red lines
define the average daily range for today.

Upcoming
Catalysts

Today, we have the FOMC Policy Decision. Tomorrow, we get the latest US
Jobless Claims figures. On Friday, we conclude the week with the US PCE data.