NZD/USD advances towards 0.5800 as risk appetite improves, hawkish Fed bets trim

• NZD/USD is aiming to hit the 0.5800 resistance amid an upbeat market mood.
• Fed’s Desy is in favor that the central bank should trim the current pace of hiking interest rates.
• NZ markets are off on account of Labor Day.

The NZD/USD pair is moving towards the north with sheer confidence as investors’ risk appetite has improved dramatically. The pair is marching towards the critical hurdle of 0.5800 as a less-hawkish tone on interest rate guidance by a Fed policymaker, in such a long time, has infused an adrenaline rush into the risk-perceived currencies.

The US dollar index (DXY) has shifted into a negative trajectory amid a major drop in safe-haven appeal. On Friday, the DXY settled below the critical support of 112.00 as S&P500 recovered its two-day losses quickly.

San Francisco Fed President Mary Daly cited the risk of weaker economic prospects led by a heightened policy tightening environment in a short period. She added that the economy is facing the pressure of higher interest rates and the Fed may slow down the pace of hiking borrowing costs further to avoid sending the economy into an ‘unforced downturn’.

Meanwhile, the returns on US government bonds have trimmed as Fed’s less-hawkish tone on interest rate guidance forced a decline in ultra-hawkish bets. The 10-year US Treasury yields dropped to 4.22% from a fresh 14-year high of 4.34%. As per the CME FedWatch tool, the chances for a 75 basis point (bps) rate hike by the Fed have declined to 88%.

On the NZ front, markets are on holiday on account of Labor Day. Last week’s upbeat Trade Balance data also supported the kiwi bulls. The annual NZ fiscal deficit has widened by $11.95M, lower than the projections of $13.19B and the prior release of $12.5B. And, on a monthly basis, the fiscal deficit has widened by $1,615M against the projections of $2,205M and the former figure of $2,625M.

Imports in the kiwi zone have dropped to $7.64B against the figure of 47.92B reported earlier exports have advanced to $6.03B vs. the prior figure of $5.29B. While major countries are facing the headwinds of external demand shocks, kiwi’s exports have accelerated firmly.

This week, China’s Gross Domestic Product (GDP) data will be of utmost importance. The annual GDP data is expected to improve sharply to 3.45 vs. the prior release of 0.4%. Also, the quarterly GDP will escalate to 3.5% against a decline of 2.5% reported earlier.