USD/JPY and NZD/USD Reactions: Warsh's Hawkish Tone Triggers Market Shift
The recent speech by Fed Chair Kevin Warsh at Jackson Hole has sent shockwaves through the financial markets, particularly in the USD/JPY and NZD/USD pairs. Warsh emphasized that progress toward a 2.0% inflation target remains modest and reaffirmed price stability as the Fed's primary mandate.
Markets responded by increasing the odds of a 25bps September hike to over 50%, causing USD/JPY to rise above the key 159.50 resistance level towards the 160.00 psychological barrier.
However, the bulls failed to clear the 50-day EMA, and the risk of FX intervention continues to loom in the background. Warsh's preference for data dependency over forward guidance may lead to thinner liquidity ahead of Friday's US Nonfarm Payrolls.
The RBNZ Rate Decision on Wednesday is expected to bring a back-to-back 25bps hike to 2.75%, with above-target inflation keeping hawkish forward guidance on the table. The recent increase in unemployment rate to 5.6% and anchored inflation expectations slightly above 2% may prompt the RBNZ governor to favor a gradual tightening pace.
The escalating US-Iran conflict has also contributed to the decline in gold prices, which plunged to 4,396 following Warsh's speech. The sharp decline reinforces the risk of a short-term bearish pullback, and gold remains vulnerable to further downside momentum due to elevated real yields.