NZD USD Reaches Multi Week High Ahead
The NZD/USD pair has surged near the 0.6100 level during Tuesday’s European session, hitting its highest point in nearly three weeks. The rally is fueled by renewed selling pressure on the US Dollar (USD) and is supported by a decline in the USD Index (DXY) as market expectations grow for the Federal Reserve (Fed) to hold off on interest rate hikes in June.
NZD/USD Benefits from USD Weakness
The NZD/USD pair has experienced strong buying interest around the 0.6100 round-figure mark, leading to a steady ascent in the European session. The decline in the USD Index, which measures the USD against a basket of currencies, has contributed to the NZD/USD rally. The USD Index has dropped to its lowest level since May 18 as market participants anticipate a pause in the Fed’s tightening cycle due to recent dovish comments from several FOMC members. This has caused US Treasury bond yields to decline, weakening the USD and providing support to NZD/USD.
Positive Sentiment in Equity Markets
The overall positive sentiment in global equity markets has also contributed to USD weakness as investors opt for riskier assets. However, concerns about a potential global economic slowdown, particularly in China, may temper the optimism. Additionally, surprise rate hikes by other major central banks, such as the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC), suggest that the fight against inflation is not over. Speculations about another 25 basis points rate increase by the Fed in July have been fueled by these developments.
Considerations for NZD/USD Bulls
While the Reserve Bank of New Zealand (RBNZ) has signaled the end of its aggressive rate hike cycle, the most significant since 1999, some caution may be exercised by NZD/USD bulls. Investors may prefer to remain on the sidelines ahead of the release of the latest US consumer inflation figures scheduled for later in the North American session. The outcome of the US Consumer Price Index (CPI) report will influence the Fed’s future policy decisions, with the highly-anticipated two-day monetary policy meeting outcome scheduled for Wednesday.
Conclusion
The NZD/USD pair has reached a multi-week high near 0.6100, benefiting from USD weakness driven by expectations of a pause in the Fed’s rate hikes. The decline in the USD Index and the positive sentiment in equity markets have contributed to the NZD/USD rally. However, concerns about a global economic slowdown and inflation-fighting actions by other central banks may limit the extent of bullish bets on NZD/USD. Market participants are awaiting the release of the US CPI report, which will impact the Fed’s next policy move and will be closely monitored ahead of the upcoming monetary policy meeting.
