NZD/USD sticks close to 21DMA at 0.6800 level in thinned trade as New Zealand data eyed

• NZD/USD’s 21DMA just under 0.6800 acted like a magnet to the price action during Monday’s US holiday-thinned session.
• Cooler New Zealand house price data failed to spur a reaction, with focus now on the NZIER release at 2100GMT.

NZD/USD’s 21-day moving average just below the key 0.6800 level acted like a magnet to the price action on what was an unusually quiet Monday, with trading conditions thinned by US market closures for MLK Day. At current levels just below 0.6800, NZD/USD looks set to close out the session flat and did not react to the latest monthly house price release from the Real Estate Institute of New Zealand (REINZ). The data showed house prices in New Zealand fell 0.3% MoM in December, taking the YoY rate of change to +22.0%.

“While the market remains confident,” said Jen Baird, Chief Executive of REINZ, “the impact of rising interest rates, tighter lending criteria and changes to investor taxation restrictions are starting to shift dynamics”. While the latest drop in prices will be welcomed by RBNZ policymakers, it is unlikely to translate into any less willingness to lift interest rates substantially in the coming years to cool off a very hot economy. NZD traders now turn their focus to the release of quarterly NZIER Business Confidence survey data (Q4) which is scheduled for release at 2100GMT.

The rest of the week doesn’t contain much by way of important US or New Zealand economic releases, nor any notable central bank speak, so the overarching driver or NZD/USD this week is likely to be risk appetite and dollar flows. Regarding the latter, recent upside in US bond yields reflecting increasingly hawkish Fed bets has many strategists calling for dollar strength in the run-up to next week’s Fed meeting. That suggests downside risks to NZD/USD, with bears eyeing a test of recent lows just under 0.6750 and then the December/2021 lows just below that at 0.6700.