NZD/USD bulls move in on dovish tilt at the Fed

• NZD/USD pops on a troubled US Dollar hit by dovish tilt at the Fed.
• Markets smell a pivot coming and price in lower rates, weighing in the greenback. 

NZD/USD has popped on the back of the market smelling a pivot at the Federal Reserve with the Fed terminal rate has fallen to under 4.9% amid chair Powell's comments. At the time of writing, NZD/USD is trading at 0.6500 and has rallied from a low of 0.6416 to a high of 0.6505 so far. 

The Federal Reserve's dovish tilt, despite inflation, ''running very hot'', has weighed heavily on the greenback as traders move into risk-positive asset classes, such as commodities and stocks, supporting the high beta NZD.  The Federal has increased interest rates for the eighth time in a year but slowed its pace to a quarter of a point in a nod to an improved inflation outlook. There was an initial bid in the greenback but it soon turned sour for the US Dollar bulls and the sell-off gathered pace as the cracks in Fed's chairman's, Jermoe Powell, comments started to reveal a dovish shift at the Fed. 

Fed chair key comments

"We can now say for the first time that the disinflationary process has started".

• Powell speech: Very difficult to manage the risk of doing too little on rates

• Powell speech: Disinflationary process is in early stages

• Powell speech: History cautions against prematurely loosening policy

• Powell speech: Well-anchored longer-term inflation expectations not grounds for complacency

• Powell speech: Will likely have to maintain restrictive stance for some time

• Powell speech: Very difficult to manage the risk of doing too little on rates

• Powell speech: Policymakers did not see this as a time to pause

• Powell speech: Will not be appropriate to cut rates this year according to our current outlook

NZD now depends on RBNZ

Analysts at ANZ Bank said that ''with local markets firmly embracing “just” a 50bp RBNZ hike later this month, the NZD’s prospects are somewhat capped, but if the USD continues to crumble, that’s an offset. So there are plenty of balls in the air, and we remain attuned to volatility rather than directionality.''

''Yesterday’s NZ labour market report for Q4 still portrayed a labour market beyond ‘maximum sustainable employment’. However, the data were weaker across the board than the Reserve Bank of New Zealand expected back in November, with unemployment rising slightly, jobs growth slowing sharply, and wages (while still very strong) coming in below their expectation,'' the analysts added. ''Combine a softer employment report with Q4’s weaker-than-expected non-tradables inflation print last week, and we think there’s strong evidence that the RBNZ should downshift to a 50bp OCR hike at their 22 February meeting.''