NZD/USD upside limited ahead of US State of the Union address as crude oil prices surge

Wednesday’s Asia-Pacific outlook

The risk-sensitive New Zealand Dollar fell overnight versus the haven-charged US Dollar as Russia ramped up its shelling attacks against Ukrainian cities, casting doubt on the possibility of a near-term cease-fire. A stronger-than-expected report for US factory activity in February also helped to bolster the Greenback’s appeal. Global investors flocked into the safety of Treasuries as WTI crude oil prices surged to the highest level since June 2014, bringing stagflation fears back into the picture.

The sharp rise in oil comes amid a proposed move, already gaining momentum on both sides of the aisle in Washington DC, to restrict Russia’s ability to export oil and natural gas. These are the country’s most valuable assets. Meanwhile, the Nord Stream 2 gas pipeline’s operator reportedly laid off its workforce, adding to the probability that the US$11 billion operation will never start. European gas prices rose over 20% overnight.

This morning, New Zealand reported a 9.2% month-over-month decrease in building permits forJanuary, down from a 0.6% m/m rise in December. The island nation’s fourth-quarter import and export prices rose at 3.8% q/q and 2.7% q/q, respectively, beating analysts’ expectations. Prime Minister Jacinda Ardern announced on Monday that vaccinated travelers will no longer have to quarantine when arriving from overseas as part of a broader rollback of restrictions.

The Reserve Bank of Australia’s (RBA) chart pack will cross the wires this morning, along with fourth-quarter gross domestic product (GDP) growth figures. A Bloomberg survey sees the fourth-quarter y/y growth rate at 4.1%, which would be up from 3.9% in Q3. AUD/USD is slightly higher in early trading after the Aussie Dollar took a hit yesterday on a rather dovish RBA rate decision. US President Joe Biden is set to deliver the State of the Union address at 01:00 GMT. Mr. Biden is expected to give harsh remarks on Russia’s invasion of Ukraine while also addressing surging prices that have hampered his approval rating.

NZD/USD technical forecast

NZD/USD continues to struggle below the 38.2% Fibonacci retracement from the October 2021 to January 2022 move. A break above the Fib level may bring a push above the falling 100-day Simple Moving Average (SMA). The 20-day SMA has provided support in recent weeks, although the near-term outlook appears uncertain, with MACD and RSI showing signs of cooling momentum.

NZD/USD daily chart