Markets choppy and rangebound, await RBNZ meeting

Headlines

* US consumer confidence decreases for the first time in four months

* Bond yields ease on weak economic data as investor await key inflation report

* Apple cancels work on electric car, shifts team to generative AI

* Dollar dips versus yen after Japan inflation data, US durable goods

FX: USD continued to trade around the 200-day SMA at 103.73 and 50% level of the Q4 selloff at 103.86. Month-end flows and the risk of a US government shutdown are creeping into price action. Citibank flag dollar selling into month-end. Congress is divided with the deadline for agreement for some departments this Friday, with a shutdown if no deal is reached by 8 March. Durable goods fell due to plunging aircraft orders while consumer confidence also dropped.

EUR stayed above its 200-day SMA is at 1.0827 though had a down day. Lagarde remained cautious in a recent speech and wanted more evidence that inflation is returning to target.

GBP turned back from 1.27 again. Next week’s Budget is getting some focus with the potential for tax cuts on a knife edge. If announced, these would underpin support for the pound.

USD/JPY slid close to 150 after stronger than expected CPI data before finding buyers. The core rate fell to 2.0% from 2.3%, but more than the 1.8% forecast. The headline remained above target at 2.2% and validates predictions of a rate hike by June. Losses eased in the major, which was mildly surprising with the yen’s heavy short positioning.

AUD was marginally lower but printed a doji candle more or less. USD/CAD moved higher but remains in a wider range which started in the middle of January. A hawkish hold is expected by the RBNZ today.

Stocks: US equities were mixed. The benchmark S&P 500 closed 0.17% higher at 5,078. The Nasdaq 100 added 0.21% to finish at 17,971. The Dow Jones settled 0.25% down at 38,792. Utilities and communication services were the best performers while energy and health lagged. Apple bounced on reports it had abandoned its EV venture and was shifting employees to generative AI ventures.

Asian futures are mildly green. APAC stocks were mixed after the muted Wall Street handover. The Nikkei 225 printed fresh all-time highs before reversing gains after the hotter than forecast CPI data. China stock indices were mixed.

Gold traded around its 50-day SMA is at $2032 in a narrow range. The halfway point of the November rally resides at $2040. US Treasury yields ticked up modestly and are nearing strong resistance at 4.33% on the 10-year.

Day Ahead – RBNZ still hawkish?

The RBNZ meets to announce policy and release its new projections. The rate decision should be unchanged, but there’s about 6bps priced in for a rate hike, so 24% chance. The bank meets less often than its peers – seven times per year versus eight for the Fed, ECB and RBA. That means it relies on quarterly data which can cause unexpected changes to policy.

The hawkish bias at the last meeting in November took markets by surprise. Since then, headline inflation has fallen faster than the bank’s Q4 forecasts. Key will be the new inflation outlook and the rate path for the OCR. Migration and non-tradeable inflation could remain high and mean the tightening stance remains.

Chart of the Day – NZD/USD bullish momentum stalls

The kiwi has been the strongest G10 major currency this month. The carry is the highest on a two-year basis and compares very favourably with the US (75bps higher) and Australia (120bps higher). An unchanged decision is likely, but a continued more hawkish bias should support NZD.

Prices found strong support in a zone just below 0.61 during late January until the middle of this month. The 200-day SMA at 0.6075 and the midpoint of the November rally at 0.6071 reside in this area. The major has moved up to the 50-day SMA at 0.6175. Initial support is at the 38.2% Fib level at 0.6141 with a more hawkish position by the RBNZ potentially pushing prices up to last week’s top at 0.6218.

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