NZD/USD bulls are in the market as US Dollar gives up ground

• NZD/USD bulls are in play and taking on the 0.62 territories as the US dollar tails off.
• RBNZ and Fed sentiment are at the helm of the moves. 

NZD/USD is up on the day as the US Dollar slides in a correction, supporting the bird up from a one-month low of 0.618 overnight on Monday. At the time of writing, NZD/USD is trading at 0.6200 and has moved up from a low of 0.6175 to score a high of 0.6224 so far. 

it has been more of a US dollar story in the currency markets at the start of the week which has fallen against most FX on Tuesday after better-than-forecast growth data from China. China's gross domestic product (GDP) grew 4.5% year on year in the first three months of the year, data showed, beating analyst forecasts for a 4% expansion after the end of COVID-19 restrictions lifted the world's second-largest economy. ANZ Bank wrote in a note on Tuesday that it sees upside risks to its GDP forecast of 5.4% for 2023. Q2 GDP could hit 8% YoY. ´´If the property recovery is sustained, GDP may approach 5% in the second half of the year. The authorities will likely keep interest rates on hold.´´Meanwhile, March activity in China also showed Retail Sales jump sharply by 10.6%, beating expectations and hitting a near two-year high.

The data and growth sentiment around China has hurt the US Dollar that had otherwise found a bid on Monday after New York state factory activity in April increased for the first time in five months. There has been a series of events that have been helping bolster expectations that the Federal Reserve will raise interest rates in May, including Friday´s hawkish rhetoric from a top Federal Reserve official.

Federal Reserve´s Governor Christopher Waller said that despite a year of aggressive rate increases, the Fed "hasn't made much progress" in returning inflation to their 2% target and argued that rates still need to go up. There were some bullish components in the latest US Retail Sales as well and Consumer spending for the past quarter was also solid. 

Looking ahead, the Federal Open Market Committee will enter a blackout this weekend ahead of the 2/3 May meeting. The latest guidance is very much in line with market pricing and Atlanta Fed President Bostic said that he favors one more 25bp rate hike and then a pause. Bostic explained that tightening in credit conditions could do some of the Fed’s work. ´´The Atlanta Fed has historically been seen, rightly or wrongly, as a barometer of consensus on the FOMC,´´ analysts at ANZ Bank said.

´´ The Atlanta Fed’s GDPNow indicator was little changed following the data at 2.5% saar for Q1. The advance estimate of Q1 GDP will be released next week. The early median estimate is for a 0.5% q/q gain, 2.0% saar,´´ the analysts added.

On April 21, the S&P PMIs for early April will be in focus as an indicator for the US economy but they will also offer a first comprehensive look at the state of the US economy post-banking turmoil, analysts at TD Securities said. ´´Note that the March data was not clearly impacted by banking jitters, but perhaps it was too soon to be reflected: both the mfg and services PMIs registered their third consecutive increase then, with the latter advancing further into expansion territory.´´

Domestically, amid bets that the Reserve Bank of New Zealand will stay hawkish and deliver a 25bps hike in May or July following the surprise cash rate lift by 50bps to 5.25% in early April, NZD is supported. In the minutes of the prior meeting, it was stated that inflation in the nation remained too high, with employment beyond its sustainable level.