NZD/USD pressured by both FOMC and NZ GDP; Testing below 38.2% with sharp switch in trajectory
- NZD/USD has extended its post FOMC slide to a low of 0.6762 following the GDP data.
The bird currently trades at 0.6766 from an overnight high of 0.6870. While the FOMC decision was the main event today, the domestic markets have punished the bird further on a Q3 GDP +0.3% q/q vs the 0.6% expected and 1.0% in Q2. For the y/y, up 2.6% expected 2.8% y/y, prior 3.2%, revised up from 2.8%.
The RBNZ had a forecast well off the mark at 0.7% growth for Q3 which will lend support for a lower bird on interest rate differentials. "Market pricing for the OCR has already become a little more circumspect of late, in light of the weaker global pulse," analysts at ANZ explained.
FOMC outcome
As expected, the Federal Reserve hiked rates following unanimous at the FOMC. Rates were raised by 25 basis points to 2.25% - 2.50%. The Statement came with little new, repeating that risks to the economy appear 'roughly balanced' and will "continue to monitor economic and financial conditions for their effects on the economic outlook." However, the Fed forecast two hikes in 2019, above where the street has priced which fulled a rally in the greenback. There was also a boost to growth forecasts for 2020 but downgrades to 2018 and 2019 while inflation forecasts were unchanged - (DXY rallied from 96.61 to a high of 96.96) - That is a toxic cocktail for risk appetite and weighs on the high beta bird.
- Federal Reserve's FOMC statement - Dec. 19 - full text
- FOMC raises the target for fed funds rate by 25bp to 2.25% - 2.5%
GDP forecasts:
- 2018 3.0% vs 3.1%
- 2019 2.3% vs 2.5% prior
- 2020 2.0% vs 1.8% prior
Inflation:
- 2018 1.9% vs 2.0% prior
- 2019 2.0 vs 2.1% prior
- 2020 2.0% vs 2.1% prior
NZD/USD levels
- Support 0.6760
- Resistance 0.6980
NZD/USD dropped back below the 38.2% fibo and now eyes a test of S3 and confluence with the 50-D SMA down at 0.6730. The prospects can be for a flight towards the 61.8% Fibo at 0.7048 are long gone and the 23.6% fibo is a more likely scenario down at 0.6663. RSI and various indicators are leaning with a bearish bias, supporting the bearish outlook for forthcoming price action.