NZD/USD hit by a toxic cocktail of risk-off themes

• NZD/USD is heavy as the US dollar remains firm in risk-off markets. 
• Russia and the Fed are a toxic cocktail for high beta currencies such as the NZD.

Down some 0.15%, NZD/USD is currently trading near 0.6690 and has travelled between a low of 0.6670 and a high of 0.6709. The escalating tensions between Russia and Ukraine have been the driver while investors get set for the Federal Reserve this Wednesday, 

As a result, the S&P 500 came within a hair's breadth of a correction, its first correction since the 2020 collapse in global markets brought on by the coronavirus pandemic. However, US stocks ended higher Monday after reversing heavy early losses rallying late ahead of mega-cap technology earnings and a Federal Reserve policy meeting this week. The Nasdaq Composite gained 0.6% to 13,855.13, turning green in a drastic last-minute reversal. The S&P 500 rose 0.3% to 4,410.13 and the Dow Jones Industrial Average was also 0.3% higher, to 34,364.50.

Meanwhile, ''data are pointing to an easing in economic activity at the start of the year, amid broader inflation concerns,'' analysts at ANZ Bank explained. 

This week, the Consumer Price Index will be the focus in this regard. ''The 10% rise in oil prices over Q4 should see Transport as the most significant contributor to the headline with upside risks coming from housing, primarily on rising raw material costs and a faster pace of consents,'' analysts at TD Securities exlained. ''A print near 6%, a 3 decade high is unlikely to trigger a significant market reaction, but a print in line with the RBNZ's 5.7% YoY forecast should drive a rally.''

As for the US Central Bank, the market is getting set for a US Federal Reserve and the market is expecting the Fed to signal the removal of its vast stimulus programme. ''The risk with the meeting may be that the Fed comes out even more vociferously in its intentions to adjust policy in response to inflation,'' the analysts at ANZ Bank explained.