NZD Soars Despite Drop in Confidence

The New Zealand dollar is up sharply on Tuesday. In the North American session, NZD/USD is trading at 0.6943, up 0.83% on the day.

NZ consumer sentiment falls sharply

Westpac Consumer sentiment slowed for a third straight quarter, and the Q1 release showed a sharp drop, falling from 99.1 to 92.1. The 100-level separates optimism from pessimism, so the latest reading, which is the lowest since the global financial crisis of 2008, is certainly a cause for concern.

The survey found that many consumers were seeing a deterioration in their finances. One of the major culprits is, of course, inflation, which surged to 5.9% in December. Wages haven’t nearly kept up, with an increase of about 3.8%. Borrowing costs have increased, which has added to the expenses of consumers, especially for homeowners with a mortgage. Add to this mix concerns over the spike in Omicron cases, and it’s not hard to make a case for an unhappy and pessimistic consumer.

In the US, the trading week started with Fed Chair Powell delivering a hawkish message to the markets. Powell came out swinging, saying that the Fed was prepared to be more aggressive in raising rates if needed. Powell noted that “the labor market is very strong, and inflation is much too strong” and said that the Fed would not hesitate to implement 50-basis point increases at future meetings if necessary. In response to Powell’s hawkish message, US Treasury yields rose on Monday to their highest level since 2019 and the upswing has continued on Tuesday, with the 10-year Treasury yield rising to 2.37%.

The Fed has traditionally adhered to 25-basis point moves, which are intended to minimize affecting market movement. The fact that Powell openly stated that he is open to 50-bp hikes underscores the severity of high inflation. Powell’s comments included a mea culpa, with the Chair acknowledging that Fed policy makers “widely underestimated” how long inflationary pressures would last.

NZD/USD Technical

  • NZD/USD is putting pressure on resistance at 0.6974. Above, there is resistance at 0.7033
  • There is support at 0.6849 and 0.6786