- NZD/USD holding in the bullish territory following a dip in the US dollar.
- The bond market is pricing in a dovish Fed which is weighing on the greenback.
NZD/USD is trading at 0.7196 between a low of 0.7180 and a high of 0.7197 virtually flat following regaining some composure overnight owing to the drop in the US dollar and the one markets reaction to +5.0% YoY US May CPI print.
''Despite the bumper reading, US bond yields have continued to fall on what looks like more short-covering, and at the margin, that weighed on the USD and saw the S&P500 hit an intraday all-time high,'' analysts at ANZ Bank said.
''Commodities continue to grind higher too, with the Refinitiv/Core CRB index hitting a new high for the year. High inflation is the global topic-du-jour, but it’s not affecting risk appetite, and unless or until it alters Fed/ECB rhetoric, we are likely in for more range trading with a mild NZD upside bias.''
Meanwhile, NZD/USD has not been performing too well over the past number of weeks.
Markets are now somewhat sceptic as to whether the Reserve Bank of New Zealand will deliver the 150bp of OCR hikes previously forecasted.
However, if the US dollar takes another trip to the downside as commodities rise, NZD/USD will be well on its way to finally trade above 0.76 by year-end, according to analysts at Westpac.
''We will look for signs the recent decline has lost momentum, with a view to entering a medium-term long position. The range low at 0.7115 could be one such opportunity.''
Looking ahead the Federal Reserve interest rate decision will be important.
The Fed is in no hurry to exit, but, on the other hand, analysts at TD Securities argue that the tone will probably be slightly less dovish than in April.
''We expect the chair to say that the committee has started discussing a progress-dependent tapering plan while also emphasizing that action will require much more progress,'' the analysts argued.
''A less dovish Fed tone next week would help to stabilize the USD in the very short run,'' the analysts forecasted.
Domestically, the March quarter Gross Domestic Product will be key. ''Survey gauges of business activity continue to rise (across), indicating continued firmness in economic conditions during the months ahead,'' analysts at Westpac explained.
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