NZDUSD steady above 0.6400 ahead of NZ employment data, Fed’s decision

• The New Zealand dollar continues its eight-day free fall from 0.6800s to 0.64000.
• The Federal Reserve began its two-day monetary policy meeting, expected to hike rates by 0.50% and start reducing the balance sheet.
• A positive Q1 New Zealand employment data increased the odds of a 50-bps rate hike by the Reserve Bank of New Zealand.

The NZD/USD slides for the eighth consecutive day amidst a risk-on market sentiment that usually favors the kiwi. However, as the Federal Reserve meeting started today, market players remain at bay, awaiting Wednesday’s US central bank decision. At 0.643s, the NZD/USD is trading near fresh 22-month lows at the time of writing.

Positive sentiment fails to lift the kiwi

Sentiment-wise, European and US equities are rising on Tuesday, despite investors’ concerns about China’s zero-tolerance Covid-19 program, which threatens to reimpose strict restrictions in Shanghai, while Beijing continues testing millions of people in desperation to control the crisis. Regarding the aforementioned, Fitch Ratings cut China’s GDP prospects for 2022, which initially were 4.8% to 4.3%, and blamed the potential delay in the easing of current curbs. China is expected to follow its strictly Covid Zero strategy until 2023.

Aside from this, US economic data revealed on Tuesday failed to boost the prospects of the greenback, as shown by the US Dollar Index, losing 0.16%, sitting at 103.443. March’s US Factory Orders grew faster than the 1.1% estimated, to 2.2% m/m; contrarily, the JOLTs Job Openings rose to 11.549M, almost 600K higher than the 11M estimated, reflecting the tightness of the US labor market.

Meanwhile, on Wednesday, the Federal Reserve is expected to hike rates by 50-bps for the first time in decades. Also, market participants estimate that the Quantitative Tightening (QT) aiming to reduce the Fed’s balance sheet would start after the May meeting at a $95 Billion pace.

In the week ahead, important New Zealand data would cross the wires on Wednesday. New Zealand employment figures, alongside the Reserve Bank of New Zealand Stability Reports, would be reported. Analysts at TD Securities wrote in a note that they expect the labor market to tighten further in Q1 while the Unemployment Rate would fall to 3%.

They added that “we remain cognizant of downside risk posed by the Omicron disruption on the labor market. On wages, we expect a 0.8% q/q increase in the Labour Cost Index, which would bring the annual growth rate to 3.2% y/y, the highest since Q4’08. A strong Q1 labor market print will support our call for the RBNZ to continue with its “stitch-in-time” approach and aggressive tightening stance, hiking by 50bps in May.”

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