NZD/USD bounces from 0.5600 as hawkish RBNZ bets soar, US ISM PMI eyed

• NZD/USD has picked bids from around 0.5600 on soaring hawkish RBNZ bets.
• The RBNZ is expected to escalate its OCR 50 bps consecutively for the fifth time.
• The gloomy outlook for US ISM PMI data is weakening the DXY.

The NZD/USD pair has rebounded firmly after picking bids around 0.5600 in the Tokyo session. Last week, the asset witnessed a steep decline after failing to cross the critical hurdle of 0.5750. The kiwi bulls witnessed an intense sell-off despite a decline in the monthly Consumer Price Index (CPI) data. The monthly inflation data declined to 6.8% from the prior release of 7%.

Also, the downbeat Caixin Manufacturing PMI data kept the antipodean on the tenterhooks. The economic data has landed at 48.1, lower than the expectations and the prior release of 49.5. It is worth noting that New Zealand is a leading trading partner of China and a weaker-than-projected Caixin Manufacturing PMI data carries a significant impact on NZ exports.

This week, investors’ focus will be on the interest rate decision by the Reserve Bank of New Zealand (RBNZ). Reuters poll on RBNZ rate hike forecast claims a fifth consecutive rate hike by 50 basis points (bps). A fifth half-a-percent rate hike by the RBNZ Governor Adrian Orr will push the Official Cash Rate (OCR) to 3.5%. It would be worth watching whether an OCR above 3% is sufficient to anchor the galloping inflation.

Meanwhile, the US dollar index (DXY) is expected to drop below the immediate cushion of 112.00. The DXY is likely to witness a sheer decline ahead of US ISM Manufacturing PMI data. The continuation of ‘the hawkish’ stance on interest rates by the Federal Reserve (Fed) has shrunk the extent of manufacturing activities. Firms have postponed their expansion plans due to higher interest rates and bleak demand growth.

As per the projections, the US ISM Manufacturing data will decline to 52.3 vs. the former release of 52.8. Also, the US ISM New Orders Index data, which is an indicator that reflects forward demand is expected to drop significantly to 49.6 against the prior reading of 51.3.