It has been an incredible morning in the FX market following the FOMC’s decision to lower its forecasts for interest rates, GDP, unemployment and inflation. This resulted in a massive and widespread USD sell-off against every other major currency. At one point in the chaotic aftermath of the FOMC’s meeting EURUSD was over 400 pips higher than its pre-FOMC levels, with the pair briefly breaking above 1.1000. The dollar index is now set for its biggest daily drop since July 2013.
In the hours following the FOMC meeting NZDUSD reached an important resistance zone around 0.7550, but the pair’s upward march was stop in early Asia trade by a widespread retracement towards the USD. However, stronger than expected growth figures out of New Zealand provided the pair with another opportunity to test this level, but it failed to break through once again.
Even though NZ’s Q4 GDP numbers are encouraging, they aren’t enough to override the dominating effect that the USD has on all of the majors at the moment. NZ’s economy expand at its fastest pace in seven years in 2014 at 3.5%, beating an expected growth rate of 3.4% y/y. In Q4 the economy grew a still impressive 0.8% q/q, matching estimates. The driving forces behind the expansion are low interest rates which is encouraging domestic spending and a low NZD is encouraging tourist spending. This quarter’s growth is likely to soften due to falling milk production as a result of a drought in some regions, and overall growth this year is expected to drop to 3% according the RBNZ.
NZ Real GDP (y/y)
Source: FOREX.com, Bloomberg
NZDUSD is flirting with 0.7500 at the time of writing, after being rejected at 0.7550 earlier in the session. While we like the kiwi’s fundamentals, the USD is king at the moment and there is more US economic data tonight which may move the pair. From a technical perspective, my colleague Fawad Razaqzada notes that we need to see a break of 0.7610 – which would confirm a double-bottom – before becoming too bullish.