NZD / USD Aiming Higher, But US PCE Could Cause Fed Policy Volatility

New Zealand Dollar, NZD / USD, Consumer Confidence, Treasury Market, PCE -Talking Points

  • Asia-Pacific markets could end the week in a calm mood
  • US PCE data may cause significant volatility in NZD / USD
  • NZD / USD remains backed by RBNZ-inspired strength

Friday Asia-Pacific Outlook

Asia-Pacific markets could experience a calm day to end the week, with a light economic calendar for Friday’s trading session. That would prolong Thursday’s lackluster action in the APAC region stock markets when the Hang Seng index fell 0.18%. Wall Street trading also offered a rather bland performance despite a robust initial jobless claims figure to start the day. The S&P 500 gained 0.12%, while the highly technical Nasdaq 100 lost 0.33%.

The Department of Labor (DOL) reported 406,000 new jobless claimants for the week ending May 22, 19,000 according to consensus forecasts, according to the DailyFX economic calendar. The second revision of US gross domestic product (GDP) data for the second quarter crossed the line, posting an increase of 6.4% on a quarterly basis, matching original estimates.

Elsewhere, yields on U.S. government bonds rose as rate traders sold Treasuries across the curve. The benchmark 10-year yield gained 1.39% by the New York closing bell. The Treasury bill sale follows reports showing President Joe Biden’s upcoming budget is expected to see government spending increase to $ 6 trillion next year, as Bloomberg reports.

A 7-year Treasury bill auction followed later in the New York session. Investors showed strong demand, with an above average bid-to-cover ratio of 2.41. The previous sale of treasury bills offered a strong concession for the auction. Bond traders normally sell in the market before an auction to buy at a lower price. The yield on the sale stood at 1.285% against an expected maturity rate of 1.294%, showing the market’s willingness to buy even at a lower rate.

New Zealand saw the ANZ-Roy Morgan Consumer Confidence Index hit the leads at 114 for May from a reading of 115.4 the month before. Although there has been a slight drop, the 114 level shows consumers remain confident. Later today, Japan will release labor figures, and India’s foreign exchange reserves report for the week ending May 21 will close APAC day.

Longer term, the impression of personal consumption expenditure (PCE) in the United States is a potential high impact event that could see significant volatility move into risk-sensitive pairs like the New Zealand dollar. The figure is expected to come out at 2.9% on an annual basis, with a stronger than expected impression being a potential headwind for the NZD / USD. Markets fear that rising price pressures will cause the Fed to push back stimulus more quickly than currently expected, which could strengthen the greenback.

NZD / USD technical outlook:

The recent rise in the New Zealand dollar continued overnight against the US dollar, although the price remains below the previous day’s intraday high after the RBNZ. Still, momentum looks healthy with MACD rising after signal line crossing. The recent high of 0.7315 – which coincides with the January high – appears to be a technical hurdle. A sharp break up would likely see February’s multi-year high focus.

NZD / USD daily chart

Chart created with TradingView

NEW ZEALAND DOLLAR TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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