- The NZD continues its eight-day free fall from 0.6850 to 0.64000.
- The Federal Reserve has started its two-day monetary policy meeting, is expected to raise rates by 0.50% and start reducing the balance sheet.
- Positive employment data in New Zealand in the first quarter raised the odds of a 50 basis point rate hike by the Reserve Bank of New Zealand.
The NZD/USD it falls for the eighth day in a row amid a risk-on market sentiment that generally favors the kiwi. However, with the Federal Reserve meeting starting today, market players remain constrained, awaiting the US central bank’s decision on Wednesday. Currently trading at 0.6435, the NZD/USD is trading near fresh 22-month lows at the time of writing.
Positive sentiment fails to lift kiwi
On sentiment, European and US stocks rose on Tuesday, despite investor concerns over China’s zero-tolerance Covid-19 program, which threatens to re-impose strict restrictions on Shanghai, while Beijing continues to assess millions of people desperate to control the crisis. Regarding the above, Fitch Ratings cut China’s GDP outlook for 2022, which was initially from 4.8% to 4.3%, and blamed the possible delay in the relaxation of current restrictions. China is expected to follow its strictly Covid Zero strategy until 2023.
Aside from this, US economic data released on Tuesday failed to boost the dollar’s outlook, as shown by the US Dollar Index, which lost 0.16% to 103.443. March US factory orders grew faster than the 1.1% estimate, to 2.2%, by contrast, JOLT job openings increased to 11.549 million, almost 600,000 more than the 11 million estimate, which reflects the tightness of the US labor market.
Meanwhile, on Wednesday, the Federal Reserve is expected to raise rates by 50 bps for the first time in decades. In addition, market participants estimate that the quantitative adjustment (QT) with the objective of reducing the Fed’s balance sheet would begin after the May meeting at a rate of 95 billion dollars.
In the coming week, important New Zealand data will cross the wires on Wednesday. New Zealand employment figures will be reported, along with stability reports from the Reserve Bank of New Zealand. Analysts at TD Securities wrote in a note that they expect the job market to tighten further in the first quarter, while the unemployment rate is expected to fall to 3%.
They added that “we remain aware of the downside risk posed by Ómicron’s disruption to the labor market. In wages, we expect a 0.8% increase in the Labor Cost Index, which would take the annual growth rate to 3.2%, the highest since the fourth quarter of 2008. A strong labor market figure in the first quarter will support our called for the RBNZ to continue its “stitch in time” approach and aggressive tightening stance, rising 50bps in May.”
Technical levels
Source: Fx Street
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