- NZD/USD holds steady in the meat of the recent ranges post-Fed day.
- US dollar is under pressure on a more dovish than expected Powell presser.
NZD/USD is entering early Asia after the closing bell on Wall Street marginally higher on the day following an offer in the greenback following slightly dovish rhetoric from the Federal Reserve's chairman.
NZD/USD recovered from a low of 0.6900 to a high of 0.6969.
The Federal Open Market Committee left the Federal Funds Rate at 0.00-0.25% in what was seen as a hawkish hold as per the statement and a note that said the "economy has made progress toward goals since setting the bar for taper in December and will continue to assess progress in coming meetings."
Meanwhile, the pace of asset purchases was left at USD120bn/month, made up of Treasuries and agency mortgage-backed securities.
Initially, the dollar was bid but then sank on what was perceived to be more dovish than expected from the chairman, Jerome Powell's comments at the press conference.
DXY 15-min chart
During the presser, with respect to the catalyst for tapering, Powell put all of the emphasis on the Unemployment Rate as opposed to risks of run-away inflation.
In the latest data, it is seen that some 9.5 million US workers were unemployed in June 2021, compared with 5.7 million in February 2020, and the unemployment rate stood at 5.9%, up from 3.5%, seasonally adjusted.
Therefore, traders figure the Fed is far from creating a taper tantrum in the rates markets such as we saw back in 2013 when there was a surge in US Treasury yields from the Federal Reserve's (Fed) announcement of future tapering of its policy of quantitative easing.
This took the greenback down to test below what could turn out to be significant trendline support for the near future:
DXY 4-hour chart
Meanwhile, however, overall, as analysts at ANZ Bank explained, ''markets were largely unperturbed by the Fed statement this morning.''
''The Fed continues to see the spike in inflation (5.4% YoY in June) as “largely reflecting transitory factors”, and while they did note that “the economy has made progress” on the Fed’s goals, once again there was no concrete discussion of tapering asset purchases.''
Specifically for the kiwi, the analysts said, ''the tapering of bond purchases is coming, but not yet, and the Fed still sees higher inflation as being transitory. Against that backdrop it may be difficult for the NZ market to continue to price in such lofty expectations, posing downside NZD risks.''
