NZD/USD bears are moving in as inflation fears are stoked

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  • NZD/USD on the backfoot in borad risk-off sentiment.
  • Wall Street’s route came on the heels of an uber hawkish Fed chairman and inflation fears. 

At 0.6294, NZD/USD is under pressure in the open of Asian trade due to generalised rout in risk assets. The moves in markets come on the heels of the US Federal Reserve Chair Jerome Powell who amplified a strong hawkish tone yesterday, pledgeding to ratchet up interest rates as high as needed, including taking rates above neutral, in order to cap runaway inflation that he said threatened the foundation of the economy.

The initial reaction in markets immeadiately after the interview with the Walls Street Journal was a firmer US dollar and risk-off in financial markets, but the moves were soon pared and the US benchmarks rallied to fresh highs on the day.

However, all of this was reversed on wednesday when the retailer, Target, reported that higher-than-expected costs ate into its quarterly earnings. The stock fell over 25% and was tracking its worst day since the Black Monday crash on Oct. 19, 1987, highlighting worries about the US economy after the retailer became the latest victim of surging prices. 

Consequently, the Dow Jones Industrial Average tumbled by 3.6% to 31,490.07 while the S&P 500 plunged 4% to 3,923.68. The Nasdaq Composite was 4.7% lower at 11,418.15. The US 10-year yield fell by 8.6 basis points to 2.88%.

”Big beats to UK and Canadian CPI stoked inflationary fears, and US retailer stocks have been hammered. So we’re back to watching the ebb and flow of global risk appetite again, and it’s still volatile, and showing no real signs of basing,” analysts at ANZ bank said.

Today is new Zealand’s Budget day

”Budgets don’t tend to be as important for FX as they are for bonds, but anything that clearly upsets the fragile fiscal sustainability/growth/inflation balance could have an influence on the Kiwi at the margin. Technically, the failure to sustain the break of 0.6365 was disappointing, but 0.63 is the level to watch today (as to whether it holds),” the analysts at ANZ Bank said.