The NZD/USD pair is displaying a back-and-forth action after a soft recovery around 0.6070 in the early London session. The Kiwi asset is expected to extend recovery as the US Dollar Index (DXY) has shifted into the bearish trajectory amid bets favoring a pause in the rate-hike spell by the Federal Reserve (Fed).
S&P500 futures have trimmed some losses added in Asia, portraying a minor recovery in the risk appetite of the market participants. A decline in the US Dollar Index (DXY) has improved the appeal for US equities. However, the overall market mood is expected to remain cautious as the $31.4 trillion US borrowing cap limit has not increased yet.
The USD index has come under pressure as the Federal Reserve (Fed) policymakers are anticipated to capitalize on tight credit conditions to weigh pressure on inflation rather than hiking interest rates further.
For further guidance, US Durable Goods Orders data will be keenly watched. April’s Durable Goods Orders are seen contracting by 1.0% vs. an expansion by 3.2%. A contraction in the economic data indicates poor demand, which would have a ripple effect on US Consumer Price Index (CPI).
Investors should note that the US economy is facing issues of persistence in core inflation more than the headline price index. A contraction in durable goods demand would release some heat from core inflation and would be a more relieving factor for the Fed.
On the New Zealand Dollar front, Reserve Bank of New Zealand´s Assistant Governor Karen Silk noted that Cyclone Gabrielle was less inflationary than first feared and stated that rates need to stay on hold for an extended period. She said that they must be watchful of over-tightening policy and that the RBNZ can hold now and sees what develops.
Investors should note that RBNZ Governor Adrian Orr raised its Official Cash Rate (OCR) by 25 basis points (bps) to 5.5% this week.
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