- NZD/USD gained strong positive traction on Monday and soared to a two-week high.
- The risk appetite boost undermined the safe haven dollar and extended support for the kiwi.
- Expectations of a 50 basis point rate hike by the RBNZ provided further impetus.
The pair NZD/USD continued its recent strong recovery from a nearly two-year low hit earlier this month and gained traction for a third day in a row on Monday. This also marked the sixth day of positive movement in the previous seven and lifted spot prices to more than a two-week high during the middle of the European session.
As China prepares to reopen its doors in early June after a two-month lockdown, investors were bullish on the hope that the easing of COVID-19 restrictions will boost the global economy. This was reflected in a generally positive tone around equity markets, which dragged the safe-haven US dollar to a new monthly low and benefited the risk-sensitive New Zealand dollar.
The kiwi was bolstered by expectations that the Reserve Bank of New Zealand will raise the official interest rate by 50 basis points on Wednesday. The central bank is also expected to give a clear signal that further tightening is on the way. The combination of factors pushed the NZD/USD pair above last week’s high around the 0.6415-0.6420 area.
Therefore, the momentum could also be attributed to some technical buying, although it stalled just before the psychological 0.6500 mark. The aforementioned level should act as a reference point before the central bank’s key risk event occurs and the latest FOMC Meeting Minutes are released on Wednesday. This will play a big role in determining the next leg of a directional move for the NZD/USD pair.
Markets already seem to have priced in at least 50 basis points of rate hikes from the Fed in the next two meetings. However, investors will be looking for clues about the possibility of a big 75 basis point rate hike in June. Apart from this, the important US macroeconomic data expected for the latter part of the week will weigh on the dollar and give a significant boost to the NZD/USD pair.
Meanwhile, a nice rebound in US Treasury yields could give the dollar some support. On the other hand, the absence of market-relevant economic releases in the US warrants some caution before placing further bullish bets on the NZD/USD pair. Therefore, it is prudent to wait for the strength to sustain beyond 0.6500 before positioning for any further appreciation moves.
Technical levels
Source: Fx Street
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