NZD/USD marches towards 0.6780 as DXY edges lower at open

• NZD/USD is advancing towards 0.6780 on weak DXY amid a holiday-shortened week.
• The RBNZ raised its OCR by 50 bps to reduce the risks of inflation.
• This week investors will focus on NZ CPI, which is seen at 7.1%.

The NZD/USD pair is inching higher in early Tokyo after hitting a low of 0.6755 last week. The pair has witnessed a decent buying interest after testing Wednesday’s low at 0.6753. The asset displayed back and forth moves last week after the Reserve Bank of New Zealand (RBNZ) hiked its Official Cash Rate (OCR) by 50 basis points (bps).

RBNZ Governor Adrian Orr preferred to move its OCR formally higher to 1.5% to cool off the galloping inflation. In his speech, RBNZ’s Orr stated that the borrowing rates are highly required to elevate as it will be supportive to reduce the risks of inflation. Food and energy bills in the kiwi area are hurting the real income of the households, which is advocating a hawkish stance for the policy rates and continuation of the same further this year.

On the dollar front, the US dollar index (DXY) is performing subdued on Monday ahead of the rate guidance speeches from the Federal Reserve (Fed) policymakers. Taking into consideration the higher participation rate in the US labor market and multi-decade high inflation, a 50 bps rate hike carries more weightage and Fed Chair Jerome Powell will dictate an aggressive stance for the rest of the year.

This week, a speech from Fed Chair Jerome Powell will be the blockbuster event to watch out while the kiwi docket will report the Consumer Price Index (CPI) numbers on Thursday. A preliminary estimate for the first quarter of yearly NZ CPI is 7.1% against the prior print of 5.9%.