NZD/USD slides back under 0.6500 as buck pairs intra-day losses post-US data dump

• NZD/USD has pulled back from earlier session highs in the 0.6540s as the buck pares intra-day losses.
• The pair is back under 0.6500 and on course for its worst one-month performance since mid-2015.
• The US dollar has been strong this month amid a combination of hawkish Fed bets plus safe-haven demand.

A pickup in the strength of the US dollar, which has been on the back foot on Friday amid month-end profit-taking, in tandem with a rally in US yields following data that showed wage pressures building in Q1 has seen NZD/USD reverse back from intra-day peaks in the 0.6540s to trade back below 0.6500 and close to multi-month lows once again. The latest batch of US data showed core inflationary pressures (according to the Core PCE Price Index) easing in March, but a larger than expected jump in the Employment Cost Index during Q1.

That appears to have resulted in markets upping their Fed tightening bets, hence a rally in US yields (which has been most acute at the short-end) that has seen the US dollar reverse some of its earlier intra-day losses. At current levels in the 0.6480s, NZD/USD is trading flat on the day, but looks set to close out the week 2.2% lower, which would mark a fifth successive week in the red. As a result, the pair looks on course to have dropped nearly 6.5% this month, its worst one-month performance since mid-2015.

NZD/USD, as have many of its other major G10 /USD peers this month, appears to have fallen prey to a combination of USD bullish factors, including heightened Fed tightening bets and safe-haven demand amid concerns about global growth amid growing geopolitical risks as Russia/NATO economic/military tensions rise and China lockdowns bite. Next week will be a big one for the pair, with the Fed expected to hike interest rates by 50 bps and signal intent to get rates near 2.5% by the year’s end and also announce quantitative tightening plans, plus a barrage of tier one US data releases (official jobs report plus ISM business surveys).

But New Zealand data will also be in focus with the release of Q1 labour market figures in focus on Wednesday. This data, if it continues to show a super tight New Zealand labour market, may give the kiwi some much-needed support, if it results in a build-up of RBNZ tightening bets. One advantage the kiwi has over other G10 currencies that could help it hold firm in the face of hawkish Fed fuelled buck strength is the fact that the RBNZ is arguably the most hawkish central bank in the G10 at the moment.