NZD/USD grinds higher for the sixth straight day trades at 0.6735 ahead RBNZ monetary policy meeting

• The NZD extend its gains in the week, so far up 0.62%.
• On Tuesday, the global equities sell-off accelerated, while in the FX space, risk-sensitive currency rise vs. safe-haven peers.
• RBNZ: Money market futures have priced in a 100% chance of a 25 bps increase, while odds of a 50 bps lie at 30%.

During the North American session, the New Zealand dollar gains against most G8 currencies, while safe-haven peers stay under pressure. At the time of writing, the NZD/USD is trading at 0.6736, gains 0.63%.

Market participants are risk-off, portrayed by European and US equity futures recording losses. In the FX complex story is different, with the high-beta currencies up, led by the NZD, although contained within familiar levels.

Russia/Ukraine updates

Headlines in the Russian/Ukraine region appear to grab less of traders’ attention. On Monday, Russian President Vladimir Putin recognized two separatist regions known as Donetsk and Luhansk as independent states. His decision was immediately followed by the reactions of Western Europe and the US.

The US President Biden signed an executive order banning investment, trade, and financing to the two Ukraine separatist regions. At the same time, the US Secretary of State Blinken said that it requires a swift and firm response. Also, the European Commission President Von der Leyen said that the Russian decision is a “blatant violation of international law and the Minsk agreements.”

That said, the UK and the Eurozone have imposed sanctions on Russia. Read more here:

• UK PM Johnson: Sanctioning 5 Russian banks, three individuals, only first tranche of what UK willing to do
• EU will hit three Russian banks with an asset freeze and lock them out of EU markets - WSJ

Putting geopolitical jitters aside, on February 23, the Reserve Bank of New Zealand (RBNZ) will host its first monetary policy meeting of the year. Inflation data came hotter than the RBNZ estimated in Q4, which came at 5.7% y/y, well above the central bank target band. That cements a continuation of the bank’s tightening cycle, but the question is, how far would the RBNZ go? Money markets future priced in a 100% odd of 25 bps increase in the meeting, with a 30% chance of a 50 bps hike.

NZ and US economic docket

Regarding the economic docket, New Zealand revealed the Credit Card Spending for January, which rose to 5.5% y/y, higher than the previous month. While on the US front, Markit PMIs for February were featured, with Manufacturing and Services beating estimations, the former at 57.5 higher than the 56 foreseen, while the latter at 56.7 from 53 expected.