NZD/USD holds near strongest levels in a month

• NZD/USD is flat into the early close on Wall Street.
• Kiwi traders will look to the Q4 NZIER QSBO survey.

NZD/USD travelled between a low of 0.6361 and a high of 0.6426, currently flat on the day albeit hovering near its strongest levels in a month. The Kiwi has benefitted in a risk-on environment since the US Dollar was sold off on the back of a switch in sentiment surrounding the Federal Reserve's interest rate path. 

Easing US inflation has fueled bets for a less aggressive tightening from the Federal Reserve at the same time that China’s reopening has bolstered the outlook for the global economy. In turn, there is a demand for commodities for which the Kiwi trades as a proxy to. 

However, with US markets closed for Martin Luther King Jr. Day, and liquidity even thinner than it normally is in January, the price action has been minimal on the day and week so far. The Kiwi is oscillating on either side of 0.64, although ''with upside risks coming from the fading USD and downside risks coming mostly from softening local data and the Fed’s hawkish rhetoric,'' analysts at ANZ Bank said. ''Today is likely to be all about local data, with the Q4 NZIER QSBO survey due out at 10 am. This is data the RBNZ watch, and if it ends up being as weak as our ANZBO survey was in December, it could see local short-end rates fall further yet, taking the Kiwi with them,'' the analysts said. 

The Kiwi has been supported from a monetary policy standpoint after the Reserve Bank of New Zealand embarked on a historic tightening campaign, bringing the cash rate to a 14-year high of 4.25%. This has been the most aggressive policy tightening cycle since 1999 when the cash rate was first introduced. The RBNZ is the only central bank that is more hawkish than the Fed, and rate differentials are much more friendly than say compared to the Aussie, leaving the outlook bullish from a fundamental perspective. ''While the RBNZ has further to go to bring inflation under control, it will need to start thinking about when to take its foot off the brake,'' analysts at Westpac argued.