• NZD/USD bears are in town on a stronger US Dollar.
• RBNZ struck a hawkish tone but US data dominates. 

NZD/USD is bid by some 0.11% but pressured overall following the release of a hawkish set of Federal Open Market Committee minutes whereby a few participants had favoured raising rates by 50 basis points which has put a bid in the US Dollar but left the US Treasury Yield relatively stable. 

''Markets have been forced to reprice interest rate expectations, not just higher, but also questioning the view that once peak rates are hit, central banks will pivot quickly to cutting interest rates,'' analysts at ANZ Bank said in a note on Thursday morning in Asia.

''The early 2023 indications are that economic activity is more resilient than data implied in Q4 and that monetary tightening is not yet bearing down on broader economic activity. Economic resilience is to be lauded, but central banks are uncomfortable with current levels of aggregate expenditure and labour market demand.''

''They need to stay hawkish and are not yet in a position to declare that interest rates are “sufficiently restrictive”. If the upcoming run of February data for the US confirm robust economic activity, it is difficult to see how risk will recover in the near term.''

Speaking of which, this week will provide The Fed’s favoured inflation measure, the PCE deflator. ''The market is expecting the January headline data to remain at 5.0% YoY, in line with the previous month,'' analysts at Rabobank said. ''This would strengthen concerns that the downtrend in inflationary indicators may have stalled.

Data in line with market expectations would thus add further weight to the view that the Fed will have to work harder to push inflation back to its target level. Currently implied market rates are pointing to a peak in Fed funds close to 5.33%.''

Domestically, the overall tone of the Reserve Bank of New Zealand's statement yesterday remained hawkish, and of note, they landed firmly on the side of economics rather than emotions, the analysts at ANZ Bank explained today.

''They also highlighted the longer-term inflationary risks surrounding cyclone recovery, which speak to stronger activity and a higher OCR. There isn’t enough information available just yet, but in time, that could play into NZD strength in upcoming meetings.''