NZD/USD surged on broad USD weakness and hopes for upbeat NZ retail sales

• USD is on the back foot on better market mood.
• All eyes are now on NZ retail sales coming next.

NZD/USD is now trading around 0.7350, in the New York session, surging by almost 0.46% on broader weakness in US dollar coupled with hopes of an upbeat retail sales report from NZ, scheduled to be released after Wall Street's close. NZ core retail sales for Q4 are slated to come at 0.7% vs 0.5% prior on Q/Q basis.

On Thursday, NZ Credit card spending came at 0.6% vs 0.6% (M/M). On Y/Y basis it came as 4.6% vs 6.2% prior. The fall in credit card spending in January may be a drag for the retail sales data.

Overall, last week was mixed with NZ economic data, as unlike the manufacturing sector, the service sector activity slowed slightly in the month of January. Dairy prices were also subdued this week. But despite that, the NZD may be the best performing commodity currency on a hawkish central bank. Incoming RBNZ Governor Orr also spoke and the only thing he said was a promise to maintain clear and transparent communication.

On the other side,  the USD is under pressure as equities reverted their previous loses, while the US 10Y bond yield pulled back from fresh 4-year highs reached after the FOMC´s minutes which were quite optimistic about US economic growth, inflation and more confident about rate hikes.

Also, overall Fed speakers may be cautiously optimistic about Fed hikes. Fed’s Kashkari sounded like an optimistic dove, as usual, commenting that although the US economy is doing well, he is not sure about full US employment and inflation. Thus, Fed should be patient in hiking further rates until there are definitive signs of inflation build up above Fed’s 2% target.

Meanwhile, Fed's Quarles said that gradual rise in interest rates are 'appropriate' as the US economy is performing very well and the natural rate of interest is increasing in the US. Fed’s Bullard also warned that the Fed needs to be careful not to increase interest rates too quickly this year.

Technically, NZDUSD has to now sustain above the 0.7300 zone; otherwise, 0.7275-0.7230 and 0.7179 may be visible soon. For any meaningful recovery, NZDUSD must advance beyond 0.7340 for 0.7375-0.7435 and  the 0.7505 price zones in the coming days.