Soft US data saw the USD unwind some of its post-FOMC gain and helped nudge yields lower. US consumer confidence undershot expectations, falling to its lowest level since the November Presidential election, while housing starts and permits were also soft. The USD was already on a descending trend before the data were released, and the USD majors index ended the day down about 0.3%, falling on all the major cross rates.
Two voting Fed speakers added to the mix, outlining their views post-FOMC meeting. Kaplan said “…I’m basically saying that before I’d be comfortable taking the next step in raising the fed funds rate, I’m going to want to see more evidence that we’re making progress in reaching our 2 percent inflation objective.” In an essay, dissenter Kashkari outlined why he voted against last week’s rate hike, preferring to see whether the recent drop in inflation was transitory or not. He argued that the Fed should be focusing on falling inflation rather than making a decision based on the “faith” in the Phillips curve, which seems no longer to be working.
The NZD ended the week closing up 0.6% to around 0.7250, which is around the area of technical resistance we’ve noted previously. Gains are expected to be tougher to make from here. It’s a pretty uneventful week on the global economic calendar with no top tier US economic releases and few releases of note elsewhere. A few more Fed speakers hit the circuit and that’s about it. With little news, we’re not expecting much market action this week.
The RBNZ’s latest OCR Review will be one of the few releases of interest, but even that is expected to pass with little market reaction. The Bank will likely keep its policy guidance unchanged, and should make only a few tweaks to its one-page press statement.
NZD/JPY closed at its highest level in 3½ months, up 0.6% to 80.4. This followed the BoJ’s unchanged policy assessment on Friday. Governor Kuroda has been under pressure to lay out his exit plans for QE policy, but he didn’t deviate from the script. He suggested that it wasn’t the appropriate time to lay out in detail the exit strategy as it could lead to confusion in the market.
The NZD was up on all the other major crosses as well, although gains were modest, up in the order of 0.1-0.4%.
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