NZD/USD hits weekly highs on improving US debt ceiling talks and weaker USD

• The NZD/USD pair rallied to a weekly high of 0.6290, buoyed by favorable weather in US debt ceiling discussions and a weakening Dollar.
• The statements by the Chairman of the Federal Reserve, Jerome Powell, regarding the return of inflation to the 2% target hint at a possible delay in the rate hike, which affects the dynamics of the markets.
• Remarks by the New Zealand Finance Minister ease inflation concerns ahead of the upcoming RBNZ policy meeting, which is expected to result in a 25 basis point rate hike.

The pair NZD/USD recovers some ground and hits a new weekly high at 0.6290 amid bullish market sentiment on the back of improving US debt ceiling and US dollar talks (USD) weaker. This helped the New Zealand dollar (NZD) to offset part of its weekly losses, recovering the 200 day EMA. At the time of writing, the NZD/USD pair is trading at 0.6277.

Fed Rate Hike Possibilities Influence Market Mood as NZD Gains Ground

Wall Street posts solid gains, with the exception of the Nasdaq 100. A light economic calendar in the US left traders adrift on recent data releases from both included parties. On the one hand, the strength of Retail Sales and Industrial Production in the United States (USA) increased the appetite for the dollar. This, along with falling jobless claims, put pressure on investors to pare the three Federal Reserve (Fed) rate cuts towards the end of the year; instead, the odds of a rate hike in June rose to 40.4%, from 15% a week ago.

Fed spokespeople made remarks earlier in the day, with the Fed’s Williams saying the natural rate of interest remains low despite the pandemic, while Michelle Bowman omitted to comment on monetary policy.

As of this writing, Fed Chairman Jerome Powell made briefing statements. He said inflation is well above target and stressed that the Fed is firmly committed to bringing inflation back to the 2% target, adding that “failure would do more damage.” Powell added that the banking system is strong and rates may not rise as usual due to tightening bank credit conditions.

As for the US debt ceiling discussions, US House Speaker McCarthy and Senate Majority Leader Schumer are reportedly making plans to hold Votes on it in the coming days, and McCarthy said ongoing talks could lead to a deal as soon as this weekend, adding: “Now I can see where a deal can be reached.”

On the other hand, in New Zealand, the Minister of Finance, Robertsson, denied that the budget will cause an increase in inflation. He said: “It may sound like a lot of money, but in the whole government budget, it’s not enough to make the case that interest rates have to go up.” This comes ahead of next week’s Reserve Bank of New Zealand (RBNZ) monetary policy meeting, at which rates are expected to rise by 25 basis points to 5.50%, with a probability of a rise greater than 35%.

NZD/USD technical levels