NZD/USD falls to 6-week low

NZD/USD has stabilized today after ending the week with sharp losses. In the North American session, NZD/USD is trading at 0.6149, up 0.22% on the day. Earlier in the day, NZD/USD touched a low of 0.6102, its lowest level since July 14th.

Powell’s speech hammers the New Zealand dollar

The US dollar ended the week with sharp gains against the major currencies, with the exception of the euro. The New Zealand dollar took it on the chin, as NZD/USD fell 1.43% on Friday. The catalyst for the US dollar’s upward swing was a hawkish speech from Fed Chair Powell at the Jackson Hole Symposium. Powell’s message didn’t contain anything we haven’t heard in recent weeks from the Fed, but this time around, investors internalized Powell’s no-nonsense message that the Fed plans to stay aggressive until the fight against inflation is won. Powell stressed that the Fed would be vigilant not to ease policy prematurely, and added that the Fed would not change policy based on one or two reports of lower inflation. This statement could well have been a warning to the markets not to expect a U-turn in policy if inflation drops, as was the case following the July inflation report.

Powell’s speech was unusually brief, which may have been an attempt to prevent investors from looking for some dovish remarks in the speech and ignoring Powell’s message. The concise speech left no room for ambiguity – the Fed will continue to raise rates until it’s convinced that inflation has peaked and is on the decline. Powell’s choice of language was telling – he said that the current policy would cause “some pain”, a phrase which the markets undoubtedly did not want to hear. Powell also avoided language that the markets might have construed as being dovish, such as a “soft recovery”.

The head of the Reserve Bank of New Zealand, Adrian Orr, was also in attendance at Jackson Hole. Orr noted that the RBNZ’s policy of higher rates had slowed the economy and warned that economic growth could be “anemic”. Orr said at least two more rate hikes were likely, at which stage the RBNZ hoped to determine rate policy based on economic data.

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NZD/USD Technical

• 0.6174 is a weak resistance line. 0.6277 is the next line of resistance
• There is support at 0.6057 and 0.5979

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