The New Zealand dollar weakened on Wednesday as the country’s unemployment rate rose to 3.4% in Q4 from 3.3% in the previous quarter, boosting expectations that the RBNZ might shift to a less aggressive stance and downshift to a 50 bp rate hike in February. New Zealand’s annual inflation also jumped to a near three-decade high of 7.2% in the December quarter, above market expectations of 7.1%, but below expectations of 7.5%. NZDUSD pair may experience increased volatility in the evening after the FED decision. The US central bank is widely expected to deliver a smaller 25bp rate hike, while traders will be looking for guidance on the path for interest rate rises. It is worth remembering that Powell mentioned several times that he is afraid that the scenario from the 1970s will repeat itself. Back then an overly hasty shift in monetary policy led to the return of inflation. Therefore hawkish comments from the FED Chair may lead to strengthening of the US dollar.
From a technical point of view, NZDUSD bounced off key resistance at 0.6500, which managed to fend off market bulls several times in recent months. As long as the price sits below this level, resumption of the downward move is the base case scenario. On the other hand, medium-term 50-day SMA (green line) attempts to cross above the long-term 200-day SMA (red line). This may form a bullish ‘golden cross’ which can at times precede a move higher.
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NZDUSD, D1 interval. Source: xStation5
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