NZD/USD struggles to shift auction above 0.6260 as USD Index attempts recovery

• NZD/USD is facing hurdles in shifting its auction above 0.6260.
• The USD Index has shown a recovery move, however, the downside bias seems healthy amid the risk-on mood.
• A 25bp rate hike is expected from the RBNZ, which will push the OCR to 5%.

The NZD/USD pair is struggling in shifting its auction above 0.6260 in the Asian session. The Kiwi asset is facing hurdles as the US Dollar Index (DXY) has shown a recovery move near 102.40. The USD Index has found an intermediate cushion around 102.40, however, the downside bias has not faded yet as investors are split about the interest rate decision to be taken by the Federal Reserve (Fed) in May.

S&P500 futures have generated significant gains in the Asian session after a choppy Tuesday on hopes that fears United States banking crisis would recede further. The overall market sentiment looks positive amid improved risk appetite for risk-sensitive assets. The demand for US government bonds is getting dented further amid decelerating US banking jitters. This has increased 10-year US Treasury yields to 3.58%.

Going forward, the release of the core Personal Consumption Expenditure (PCE) Price Index (Feb) data will be of significant importance. As per the consensus, monthly core PCE would accelerate by 0.4%, lower than the former expansion of 0.6%. The annual figure is expected to remain steady at 4.7%. A deceleration in the pace of consumer spending on core goods will further ease the chances of one more rate hike by the Fed.

 As per the CME Fedwatch tool, less than 50% odds are in favor of a one more 25 basis point (bp) rate hike by the Fed for its May meeting.

On the New Zealand Dollar front, investors are expecting a less-hawkish monetary policy stance by the Reserve Bank of New Zealand (RBNZ) next week due to the dismal economic outlook. Analysts at ANZ Bank expect the RBNZ will raise the Official Cash Rate (OCR) by 25bp to 5.00% at its Monetary Policy Review (MPR) next Wednesday. A deceleration in the pace of rate hikes is optimal for decelerating economy. The report from ANZ Bank also dictated that the OCR would peak at 5.25% with one more hike to come in May.