NZD/USD dips below 0.6600 for first time since early November 2020 as hawkish Fed/strong US data boosts buck

• NZD/USD recently dipped below 0.6600 for the first time since early November 2020 as the pair maintains bearish momentum.
• It is now down more than 4.0% from its earlier monthly highs near 0.6900.
• Hawkish Fed vibes and strong US data have been driving the latest downside, with hot NZ CPI figures ignored.

NZD/USD has dipped below the 0.6600 level in recent trade for the first time since early November 2020, as the pair maintains bearish momentum courtesy of renewed USD strength following stronger than expected Q4 US GDP numbers released on Thursday. The latest drop comes after the pair reversed sharply lower from Wednesday highs above 0.6700 when Fed Chair Jerome Powell caught investors off guard with his more hawkish than expected tone in the post-Fed meeting press conference. Since then, the US dollar has strengthened across the board, with the bullish momentum carrying through to a second session. NZD/USD currently trades 0.8% lower on the day after Wednesday’s 0.5% loss, with on-the-week losses now about 1.7%.

Recent losses come following a torrid last few weeks for the kiwi. A reversal lower in global equities (the S&P 500 is roughly 9.0% lower versus monthly highs), a ramping up of Fed tightening bets and technical selling have seen the pair reverse more than 4.0% lower from monthly highs near 0.6900. Indeed, since posting annual highs on January 13, the pair has fallen in nine out of the last ten sessions. The losses really accelerated when NZD/USD broke to the south of its mid-December to mid-January upwards trend channel in the 0.6750 area on January 21. Most short-term bears will be targetting a test of the August/September 2020 lows in the 0.6500 area.

RBNZ hawkishness (the central bank has already hiked rates twice since October 2021, bringing rates to 0.75%) has been unable to shelter the kiwi from losses. That might explain why hotter than expected New Zealand Consumer Price Inflation figures for Q4 2021 (released early during Thursday’s Asia Pacific session) has been unable to offer NZD/USD a lift. For reference, CPI came in at 1.4% QoQ and 5.9% YoY, above the 1.3% and 5.7% expected.

Looking ahead to the rest of the week, though equity market sentiment has taken a turn for the better amid dip-buying, this has not yet come to the aid of risk-sensitive G10 currencies like the kiwi. Equities are likely to remain choppy for the rest of the week as investors digest Wednesday’s Fed meeting, which could keep NZD vulnerable. Otherwise, further bearish NZD/USD could come from Friday’s US Core PCE Inflation data for December, especially if it comes in hot and further pumps Fed tightening bets.