The NZD/USD pair experienced significant upward momentum during Monday’s Asian session, reaching the 0.6175 level in the past hour. This rebound comes after a two-day decline that pushed the pair to its lowest point in a week and a half.
The US Dollar (USD) faced selling pressure at the start of the new week, interrupting its recent recovery from its lowest level since May 11, reached last Thursday. The Greenback’s slowdown can be attributed to a slight decrease in US Treasury bond yields, which has weighed on the currency.
Additionally, a positive sentiment surrounding US equity futures has diminished demand for the safe-haven US Dollar, favoring the risk-sensitive New Zealand Dollar (Kiwi).
However, concerns about a potential global economic downturn, particularly in China, temper any excessive optimism. These fears were further fueled by S&P Global’s decision to lower China’s GDP forecast for this year from 5.5% to 5.2%.
Numerous major global banks, including Nomura, Citibank, UBS, and Goldman Sachs, have also recently downgraded their forecasts. The Federal Reserve’s hawkish stance is expected to limit losses for the USD and restrain the NZD/USD pair.
It is important to note that earlier this month, the Federal Reserve decided to pause its rate-hiking cycle but indicated that interest rates may still need to rise by as much as 50 basis points by the end of the year.
Fed Chair Jerome Powell reiterated that the central bank intends to raise rates again this year, albeit cautiously, in order to control high inflation. Powell emphasized that rate cuts are not on the horizon and that the Fed will wait until it is confident that inflation is moving towards the 2% target.
Furthermore, caution is warranted in placing bullish bets on the NZD/USD pair due to the Reserve Bank of New Zealand’s (RBNZ) clear indication that it has concluded its most aggressive rate-hiking cycle since 1999.
With no significant macro data from the US available, it is prudent to wait for strong confirmation of sustained buying momentum to determine whether the recent sharp retreat from the mid-0.6200s level, or the monthly swing high, has concluded.
Market participants are now eagerly anticipating the release of the US Core PCE Price Index, the Fed’s preferred inflation indicator, on Friday.
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