NZD/USD rises back above the 0.6600 level

• NZD/USD rose above 0.6600 on Tuesday as the Kiwi outperformed on the back of strong New Zealand trade data and USD weakness.

New Zealand’s monthly trade deficit saw a significantly larger-than-expected decline in December to below NZD 500m (vs. NZD 700m forecast) from previously above NZD 1tn, are helping the NZD to outperform on Tuesday. Rising around 0.6% on the day against the struggling US dollar, the Kiwi is one of the best performing G10 currencies along with the NOK and CHF, enough to catapult NZD/USD above the level of 0.6600.

Meanwhile, the dollar is suffering from a combination of factors including improved risk appetite, profit-taking after last week’s rally, and a modest easing of the Fed’s aggressive bets. Fed spokespeople this week have So far backed a March rate hike and while none have ruled out a 50bp move, all said their base case scenario was a 25bp hike. Meanwhile, Fed policymakers have been cautious in their comments about further tightening later in the year. Most expressed a desire to keep their options open to speed up or slow down the pace of tightening depending on economic conditions.

NZD/USD traders don’t seem particularly concerned about the latest statements from Fed Monetary Policy Officer Patrick Harker, which fit broadly into the above categorization. At the start of trading in the Asian session on Wednesday at 21:45 GMT, New Zealand Q4 2021 Employment Change, Unemployment Rate and Labor Cost Index figures will be released. NZD strength if RBNZ tightening bets get a boost. A local New Zealand bank recently predicted that RBNZ rate hikes would hit 2.5% by November.

Additional technical levels