It’s a busy week for both the U.S. and New Zealand!
What are traders expecting from this week’s top-tier events?
Here are the points you need to know!
Major Economic Events:
RBNZ policy statement (Feb 23, 1:00 am GMT) – After raising its interest rates at every opportunity since its August 2021 meeting, markets expect another 25 basis point hike from the Reserve Bank of New Zealand (RBNZ) this week.
Watch the statement and presser closely for biases on having a 1.00% interest rate amidst all-time low unemployment and 3-decade high inflation. Hints of even more rate hikes could strengthen NZD’s bullish reaction to the report.
U.S. preliminary GDP (Feb 24, 1:30 pm GMT) – The first estimate of Uncle Sam’s Q4 2021 GDP came in at 6.9%, much higher than Q3’s 2.3% growth and the expected 5.5% uptick.
The second estimate of factors like personal consumption, private inventories, and fixed investment is expected to raise the Q4 2021 GDP reading to 7.0%. A much higher figure may fan speculations of the Fed raising its rates by 50 basis points in March.
New Zealand quarterly retail sales (Feb 24, 9:45 pm GMT) – After an 8.1% drop in Q3 2021, traders see New Zealand’s retail activity recovering by 10.1%. This would bring the annualized figure from -5.2% to 1.5% in Q4 2021.
The report is scheduled a day after the RBNZ’s interest rate decision, so the release could either give fresh momentum or cause retracements to NZD’s intraweek trends.
U.S. core PCE price index (Feb 25, 1:30 pm GMT) – The latest Fed meeting minutes showed Fed members being ready to raise interest rates and shrink their balance sheet “soon.” And why not? The inflation rate rose by 7.0% from December to January while producer prices jumped by 9.7% after a 9.8% increase in December.
The core personal consumption expenditure (PCE) – the Fed’s preferred inflation gauge – is expected to maintain its 0.5% monthly increase in January. Like in the GDP estimate, any upside surprise would support talks that the Fed would raise its rates by 50 basis points next month.
Forex Setup of the Week: NZD/USD
A busy week for both New Zealand and the U.S. got me looking at NZD/USD’s 4-hour chart.The pair is consolidating near the .6700 mark. As you can see, the area has been an inflection point since December, is near the 200 SMA and 50% Fibonacci retracement of the last downswing, and just under a descending trend line that hasn’t been broken since late October.
Will NZD/USD extend its downtrend this week?
RBNZ is already expected to raise its rates. But if the statement and presser hint of more rate hikes in the next meetings, then NZD/USD could bust above the trend line and head for areas of interest like .6850 or .6900.
Of course, RBNZ’s rate hike and hawkish expectations could already be priced in. Traders could focus on the U.S. GDP and core PCE releases and speculations of a 50-basis point hike in March could gain momentum.
And then there’s the not-so-small matter of increased tensions between Russia and Ukraine. Escalations of military activities or failure of diplomatic relations between Russia and Ukraine’s allies could drag high-yielding bets like NZD and highlight USD’s safe-haven status. This could drag NZD/USD back to previous lows near .6600 or .6550.