Market news

15 December 2021

NZD/USD bounced off new YTD low at 0.6700, hovers around 0.6750s after Fed

  • NZD/USD reached a year-to-date low at 0.6700, as the Fed decided to increase the speed of the bond taper.
  • The Federal Reserve Board members eye three rate hikes in 2022 and three in 2023.
  • NZD/USD Technical Outlook: Bullish in the short-term, but downside risks remain.

After reaching a new year-to-date low once the Fed announced a faster bond taper and the dot-plot showed that the median of the Fed policymakers eye three interest rates hikes in 2023, the NZD/USD recovers during the New York session, trading at 0.6782 at the time of writing.

Further, the Fed’s last Summary of Economic Projections (SEP) showed that the median of the Federal Reserve Board members view the Fed Fund Rates at 0.9% by the end of 2022, 1.6% in 2023, and 2.1%  by the end 0f 2024.

US bond yields are rising in the bond market, with the US 10-year Treasury yield advancing two basis points, sitting at 1.46%, while the US Dollar Index rises some 0.11%, at 96.68. 

Key summaries of the Federal Reserve monetary policy statement

On Wednesday, in their last monetary policy meeting of the year, the Fed decided the bond-taper based on “inflation developments and the further improvement in the labor market.” Moreover, it announced the adjustment of its bond purchasing program, kicking in by January, with purchases of $40 Billion in US Treasuries and $20 Billion in mortgage-backed securities (MBS). 

Despite the adjustment to the bond taper, the Fed left the door open for further adjustments as needed to the QE’s reduction pace. Concerning the Omicron newly discovered strain, the Fed said that “risks to the economic outlook remain, including from new variants of the virus.”

NZD/USD Price Forecast: Technical outlook

The New Zealand dollar advances sharply against the buck, despite the hawkish rhetoric of the Fed. At press time, the pair pierced the December 14 high at 0.6770, and it is closing fast towards the December 13 swing high at 0.6800.

In the event of a clear break above the latter, it would expose key resistance levels. The first resistance would be the December 9 high at 0.6823, followed by the December 1 pivot high at 0.6867, and then the figure at 0.6900.

 

Market Focus

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