The NZD/USD currency pair has experienced a strong upward surge, reaching a significant resistance level at 0.6200, propelled by the sharp decline of the US Dollar Index (DXY).
This plunge in the US Dollar can be compared to a rapid collapse. Contributing to the strengthening of the New Zealand dollar is the cooling effect on May’s United States Producer Price Index (PPI) caused by lower gasoline prices.
As investors eagerly await the Federal Reserve’s (Fed) interest rate decision and the release of the dot plot, S&P500 futures have relinquished a substantial portion of the gains achieved in Europe.
The appeal of US equities has waned temporarily, although overall market sentiment remains positive, with investors expressing strong confidence in Fed Chair Jerome Powell’s inclination towards a neutral stance.
Commerzbank analysts have noted that Fed Chair Powell may attempt to create a perception of a possible rate hike in July. However, it is crucial for the currency market to not overlook the clear contradiction that such statements would create between words and actions.
The USD Index continues its downward trajectory, approaching the level of 102.90, as businesses have passed on the benefits of lower gasoline prices to consumers by reducing the prices of goods and services at the factory gates.
The monthly headline PPI for May indicates a contraction of 0.3%, exceeding the market expectation of a 0.1% contraction. On the other hand, the core PPI has remained steady at 0.2%, aligning with the anticipated figures provided by market participants for the same period.
The softer US PPI has amplified the demand for US government bonds, leading to a decline in the yield of 10-year US Treasury bonds, which now stands at 3.78%.
Meanwhile, the performance of the New Zealand Dollar will be significantly influenced by the release of the Q1 Gross Domestic Product (GDP) data on Thursday.
Based on the preliminary report, it is expected that the quarterly GDP will contract by 0.1%, an improvement compared to the previous contraction of 0.6%. Furthermore, the annualized economic data is projected to expand by 2.6%, indicating a recovery from the previous contraction of 2.2%.
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