NZD/USD looks set for further downside below 0.6120 as Fed prepares for more rate hike

• NZD/USD is on the verge of delivering a fresh downside below 0.6125 amid a solid recovery in the USD Index.
• US economic activities have shown recovery despite higher interest rates from the Fed and tight credit conditions by banks.
• RBNZ might consider a pause in the policy-tightening spell as the inflation rate has made an intermediate peak.

The NZD/USD pair is on the verge of delivering a fresh downside below 0.6125 in the early European session. The Kiwi asset remained sideways in a 0.612-0.6147 range, however, a recovery move in the US Dollar Index (DXY) is signaling a bumpy ride for the former.

The USD Index has extended its recovery to 101.86 as investors are very much confident of a consecutive 25 basis point (bp) interest rate hike from the Federal Reserve (Fed). To tame stubborn United States inflation and cap the overall demand, more rate hikes are highly required ahead.

US economic activities have shown recovery despite higher interest rates from the Fed and tight credit conditions by US commercial banks. Preliminary US S&P Manufacturing PMI (April) jumped to 50.4 from the consensus of 49.2 and the former release of 49.2. And, Services PMI jumped to 53.7 vs. the estimates of 51.5 and the prior figure of 52.6.

A surprise jump in US economic activities is indicating that demand for labor would remain steady and it will continue to keep the labor cost index elevated.

On the New Zealand front, softened inflationary pressures have provided a sigh of relief to Reserve Bank of New Zealand (RBNZ) policymakers. Last week, Statz NZ reported that quarterly inflationary pressures accelerated by 1.2% vs. the consensus of 1.7% and the former release of 1.4%. Annual inflation softened to 6.7% while the street was anticipating a marginal deceleration to 7.1% from the prior release of 7.2%.

It is likely that RBNZ Governor Adrian Orr would consider a pause in the policy-tightening spell as the inflation rate has made an intermediate peak.