NZD/USD bulls flirt with 0.6400 as NZIER signals 50bps rate hike from RBNZ

• NZD/USD grinds higher following the first weekly gain in eight.
• NZIER unveils that majority of RBNZ shadow board members expect a half-point increase.
• Softer USD joins mixed sentiment, improvement in China’s covid conditions to favor bulls.
• RBNZ is likely to announce 50 bps rate hike on Wednesday, PMIs, FOMC Minutes are also crucial for clear directions.

NZD/USD holds onto the previous week’s recovery moves from a two-year low as NZIER reveals major support for the RBNZ’s 0.50% rate hike among shadow board members. Adding to the Kiwi pair’s rebound is the broad US dollar weakness and slightly upbeat risk appetite. That said, the Kiwi pair picks up bids to 0.6410 during the initial hours of Monday’s Asian session.

The NZ Institute of Economic Research (NZIER) came out with an update on the shadow board members’ expectations for this week’s Reserve Bank of New Zealand (RBNZ) rate increase. The economic institute mentioned, “The majority view amongst Shadow Board members was that the Official Cash Rate (OCR) should be increased by 50 basis points (bps) at the May meeting.”

Given the statements from NZIER being mostly in-line with the market expectations, which seems also priced-in, the NZD/USD remains firmer, while also cheering the US dollar pullback from a multi-year high, as well as optimism at China.

The US Dollar Index (DXY) flashed the biggest weekly loss since January, not to forget snapping a six-week uptrend, as market players seemed to have bored with the 50 bps rate hike comments from the Fed policymakers, including Chairman Jerome Powell. Also keeping the greenback under pressure was the latest headline economics that flashed mixed numbers.

Elsewhere, Shanghai’s gradual unlocking and the mainland’s reduction in the covid cases, as well as the virus-led deaths, underpin optimism at the Antipodeans, due to China’s status as the world’s largest industrial player.

The market sentiment could be witnessed in downbeat US Treasury yields and the slow grind of equities in the US.

Moving on, New Zealand Retail Sales for Q1, scheduled for publishing on Tuesday, appears to be the last signal for forecasting the RBNZ moves. However, the 50 bps move has been widely-chattered and hence any surprise will become more interesting to watch for wild moves. Additionally, the Fed’s repeated signals for a 50 bps rate increase and China’s sustained recovery from the covid may help the NZD/USD to extend the latest rebound.

Technical analysis

NZD/USD floats above a seven-week-old descending resistance line, now support around 0.6385, as buyers await sustained trading beyond the previous week’s peak of 0.6415 ahead of targeting the monthly high of 0.6568.

Meanwhile, the one-week-old ascending trend line and the 10-DMA restrict the short-term downside of the pair around 0.6350 and 0.6330 respectively.