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US equities closed, US yields closed, crude up, gold up, US dollar flat. Markets await RBA minutes, PBoC rate decision, and Canadian CPI. NZD near where resistance expected to halt its rise

Currencies / analysis
US equities closed, US yields closed, crude up, gold up, US dollar flat. Markets await RBA minutes, PBoC rate decision, and Canadian CPI. NZD near where resistance expected to halt its rise

By Stuart Talman, XE currency strategist

In observance of the Presidents' Day Holiday, markets in the US were closed through Monday, resulting in very subdued trade to start the week. Overall, the week shapes up as a quiet one given the global economic calendar presents a relatively light lineup of tier 1 macroeconomic data.

Tight range trading may be the state of play, this week.

The action should heat up next week, the RBNZ interest rate decision presents as the domestic headline event, some pockets of the analyst community recently changing OCR picks, calling for Governor Orr and his colleagues to recommence rate hikes.

The likely outcome is a hawkish hold, whereby the RBNZ continues to remain attentive to upside inflation risks.

Shifting our attention back to the current week, opening near 0.6120, the New Zealand dollar continues to track higher, gaining three-tenths-of-a-percent to claim the top spot on a condensed G10 leaderboard. Aside from the NZD, all majors have traded within a +/- 0.25% intraday band.

The fourth consecutive intraday advance lifts the Kiwi back into the upper bound of the prevailing 24-day range, once again probing a 0.6140/70 resistance zone that has capped NZDUSD upside from mid-January.

A decisive topside breakout leading to the Kiwi re-establishing a foothold above 62 US cents would shift the medium-term bias from neutral to positive, suggesting that the 05 February low a couple of pips below 0.6040 will hold. 

On the downside, a decisive break below 0.6050 may embolden the NZD bears to explore sub-0.60 levels.

Of course, the directionless, choppy price action that has evolved over recent weeks may prolong given the market and the Fed are the most aligned they have been over the past few months.

Heading into 2024, the market priced in around 150bps of rate cuts, compared to the Fed's median December dot-lot, projecting circa 75 bps. The market's view drove US treasury yields and the dollar lower.

As the market has delayed the expected timing of the first cut and dialled back the magnitude of monetary easing for the year ahead, treasury yields have rebounded, the yield on the benchmark 10-year note climbing from below 3.80% through 4.30%.

In turn, the dollar index (DXY) advanced over 4% to almost touch 105.00 at last week's highs.

Market pricing now projects around 90 bps of rate cuts.

Will Fed officials present a median dot-plot change at the 20 March FOMC meeting?

Quite possibly given the run of strong macroeconomic data that has punctuated the start to 2024.

A median dot-plot projecting two, rather than three quarter point cuts would likely open a path for the DXY to re-test 2023's high above 107.30.

The February US CPI report is released on 12 March. Another upside surprise would most certainly prompt a rethink from both the Fed and the market.

Looking to the day ahead, RBA Meeting minutes and the People's Bank of China's loan prime rate (LPR) decision are the regional highlights.

In the wake of the PBoC opting to refrain from cutting the medium-term lending facility (MLF) over the weekend, no-change is expected to the LPR.

The LPR was introduced by the PBoC in 2013 and is the interest rate that commercial banks charge their premium clients. The MLF commenced in 2014 to assist commercial banks to maintain liquidity by permitting them to borrow from the PBoC using securities as collateral.

Given the persistent softness in China's macroeconomic data, cuts to the MLF and LPR would come as no surprise. Perhaps the PBoC refrained from cutting the MLF (and therefore the LPR) as it was wary of fuelling further CNY weakness.

Offshore, Tuesday's major event is CPI for Canada, headline inflation expected to ease from 3.4% to 3.3%.

Can the Kiwi extend its intraday win streak across a 5th day, ascending into the high 0.61's?

Stuart Talman is Director of Sales at XE. You can contact him here

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