New Zealand dollar plunges on taper talk

The New Zealand dollar is down sharply in the Wednesday session. NZD/USD is currently trading at 0.6864, down 1.36% on the day. It’s been a dismal week for the currency, which is down by 2.1%.

US dollar jumps on hawkish Fed comments

The US dollar has posted gains on Thursday, and risk currencies like the New Zealand dollar have been hit hard by the greenback’s newfound strength. The Federal Reserve is sounding more hawkish, which has fuelled market expectations that the central bank will announce its plans to taper at the November policy meeting, with expectations for a December taper. Despite the growing market fever over a taper, Powell & Company have been careful not to make any commitments, saying that a final decision on a taper is contingent on the economy showing strong numbers.

Still, the Fed is showing signs of a more hawkish policy, which is responsible for the US dollar gaining ground. On Tuesday, Powell told lawmakers that high inflation could last longer than anticipated, warning that inflation “will likely remain so in coming months before moderating”. The Fed has insisted has long insisted that the surge in inflation is transient, but Powell’s latest comments will strengthen expectations that the Fed will finally taper its bond purchase program before the end of the year.

In addition to Powell’s remarks, Fed President James Bullard urged the Fed to act aggressively in the face of high inflation, which could mean two rate hikes in 2022. Next on the bandwagon was Philadelphia Fed President Patrick Harker, who said on Wednesday that “it will soon be time to begin slowly and methodically” taper the USD 120 billion in monthly bond purchases. Harker added that he would support tapering as early as November.

The dollar index has shot up 0.58% on the day, to 94.30, while US Treasury yields hit 1.56% on Tuesday, the highest level since June. With a taper appearing imminent, the sun is shining on the US dollar.

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NZD/USD Technical

• The resistance line of 0.6966 has some breathing room as NZD/USD has fallen sharply. This is followed by resistance at 0.7030
• The pair is testing support at 0.6919 and 0.6855

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