NZD/USD soars above 0.5800 as DXY turns volatile, RBNZ-Fed policy divergence widens

• NZD/USD has jumped above 0.5800 firmly after positive commentary from NZ officials.
• Wednesday’s rate hike by the RBNZ has widened policy divergence with the Fed.
• The kiwi economy doesn’t see any recession situation to curtail price pressures.
• The DXY has refreshed its day’s low amid a risk-on profile.

The NZD/USD pair has crossed the day-old hurdle of 0.5805 strongly and is looking to establish above the same. At the time of writing, the kiwi pair is trading around 0.5810, 1.26% above Wednesday’s close, and is aiming to record more upside. Stable risk-on impulse has strengthened the commodity-linked currency while the US dollar index (DXY) is facing the heat.

The DXY has refreshed its day’s low at 110.78 and is expected to display sheer volatility expansion ahead. The current downside momentum has opened doors for testing Wednesday’s low around 110.00 as investors are shifting their focus towards the US Nonfarm Payrolls (NFP) data.

The consensus for the payroll data is indicating a decline to 250k vs. the prior release of 315k. Wednesday’s US Automatic Data Processing (ADP) Employment data shows that the economy has added 208k jobs in September. Therefore, cues are favoring a lower-than-expected release.

On the NZ front, the announcement of the fifth 50 basis points (bps) interest rate hike by the Reserve Bank of New Zealand (RBNZ) has widened the RBNZ-Federal Reserve (Fed) policy divergence. RBNZ’s Official Cash Rate (OCR) has been pushed to 3.5% and more hikes are also expected.

Meanwhile, the commentary from New Zealand (NZ) Deputy Prime Minister and Finance Minister Grant Robertson on monetary policy and exchange value has also strengthened the antipodean. The commentary states that the kiwi economy is not anticipating a recession situation to curtain inflationary pressures. They further added that higher interest rates will restrict demand and henceforth the inflation rate. And, the number one issue cited that the businesses are facing is tight labor supply.