NZD/USD catches a ride on broad-market risk bid but fails to recapture 0.6300

The NZD/USD erased Wednesday’s late pullback but failed to capture new territory.
Broader market flows are pressing down the US Dollar across boards, bolstering risk assets.
Friday to wrap up the pre-holiday trading week with US PCE Price Index inflation.

The NZD/USD caught a ride back up the charts on Thursday as market sentiment tips firmly risk on US economic data showing inflation continues to erode faster than markets previously expected. Slumping inflation prints are driving up market expectations of additional rate cuts from the Federal Reserve (Fed), bolstering the Kiwi (NZD) heading into the end of the last full trading week of 2023.

Early Thursday showed New Zealand Credit Card Spending for the year through November bounced back to grow 3.3% YoY after declining 2.8% YoY in October, which saw a late revision up from -2.9%.

Markets were largely non-plussed by the NZ data, with the majority of investors focused squarely on US inflation numbers.

US Initial Jobless Claims grew by an additional 2055K claimants for the week ending December 15, a minor uptick from the previous week’s 203K (revised upwards from 202K), but still came in below the market’s expected 215K.

US Annualized Gross Domestic Product (GDP) for the third quarter also came in below expectations, showing growth slowed to 4.9% from last year’s third quarterly print of 5.2%; markets were expecting GDP growth to hold steady at the previous figure.

Read More: US Real GDP grows at an annual rate of 4.9% in Q3

US Core Personal Consumption Expenditures (PCE) for the third quarter likewise came in below forecasts, printing at 2.0% versus the expected steady reading of 2.3%.

With growth slowing and declines in inflation outpacing market forecasts, investors are ramping up expectations of additional rate cuts from the Fed in 2024. Over-eager markets may be running far ahead of the Fed, whose dot plot of interest rate expectations currently sees around three rate hikes for a total 75 basis points in rate hikes through 2024.

Money markets are currently pricing in an eye-watering 160 basis points in rate cuts through 2024, with particularly eager investors betting on rate cuts beginning as soon as next March.

Friday will close out the trading week with the US PCE Price Index for the year through November, which is expected to tick down from 3.5% to 3.3%. Another below-forecast print for US inflation data could see even more furious market bets of additional cuts from the Fed next year.

NZD/USD Technical Outlook

The NZD/USD rebounded back into the top end of the trading week but failed to chalk in additional gains beyond 0.6300 as the pair remains capped below the major handle.

Broad-market risk flows forcing down the US Dollar is helping to keep the NZD/USD propped up above the 200-day Simple Moving Average (SMA) near 0.6100, but bullish momentum is starting to wane with the Kiwi up over nine percent against the USD from October’s bottom bids near 0.5770.

The NZD/USD has closed in the green for five of the last seven consecutive trading weeks and is on pace to chalk in one more green bar heading into the tail end of the year.