NZD/USD rallies back above 0.6600 as strong NZ trade data boosts kiwi ahead of key Q4 jobs report

• NZD/USD pushed above 0.6600 on Tuesday as the kiwi outperformed in wake of strong NZ trade data and USD weakness.
• Upcoming US data and Fed speak is in focus ahead of key Q4 NZ labour market metrics.

Decent trade figures, which saw New Zealand’s monthly trade deficit post a significantly larger than expected decline in December to under N$ 500M (versus forecasts for N$ 700M) from previously above N$ 1B, are helping NZD to outperform on Tuesday. Up around 0.6% on the day versus the struggling US dollar, the kiwi is one of the best performing G10 currencies alongside NOK and CHF, enough to catapult NZD/USD back above the 0.6600 level.

The dollar, meanwhile, is suffering from a combination of factors including better risk appetite, profit-taking following last week’s surge and a modest paring back on hawkish Fed bets. Fed speakers this week have so far all backed rate hike in March and while none have ruled out a 50bps move, all said a 25bps hike was their base case. Meanwhile, Fed policymakers have been cautious in their remarks about further tightening later in the year. Most expressed a desire to keep their options open to accelerate or decelerate the pace of tightening dependent on economic conditions.

NZD/USD traders did not seem particularly fussed by Fed policymaker Patrick Harker’s latest remarks, which broadly fit into the above categorization. Focus now shifts to US data in the form of the January ISM Manufacturing survey out at 1500GMT ahead of more Fed speak in the form of remarks from St Louis Fed President James Bullard at 1930GMT. Then, at the start of Wednesday Asia Pacific trade at 2145GMT, Q4 2021 New Zealand Employment Change, Unemployment Rate and Labour Cost Index figures will be released. Strong figures could fuel NZD strength if RBNZ tightening bets get a boost. One local NZ bank recently predicted the RBNZ hiking rates to 2.5% by November.