NZD/USD escalates towards 0.6270s after US GDP shrinks

• NZD/USD climbed almost 0.20% on Thursday after Fed’s hike and dismal US GDP data.
• Money market futures expectations of a Fed’s 75 bps rate hike in September lie at a 78% chance.
• NZD/USD Price Analysis: Buyers reclaiming 0.6308 would pave the way for further gains; otherwise, a move towards 0.6200 is on the cards.

The NZD/USD rises after the release of mediocre US GDP data that shows the US economy is in a technical recession after the Federal Reserve increased rates by 75 bps on Wednesday. Market players speculate that the Fed tilted “dovish,” which appears premature, as Fed Chair Powell reiterated that they are committed to bringing inflation down to 2%.

Nevertheless, the NZD/USD is trading at 0.6272 after diving in the early Asian session and hitting the daily low at 0.6250, but buyers stepping in lifted the pair just shy of reaching 0.6300.

NZD/USD advances due to upbeat sentiment on bad US GDP print

Investors’ moods shifted positively in the last couple of hours. The US Bureau of Economic Analysis reported that GDP for the second quarter in its Advance estimate contracted by 0.9%, missing estimations of a 0.4% growth. That said, money market futures have scaled back Fed tightening, and odds of a 75 bps rate hike in September lie at 78%.

In the meantime, the US Dollar Index is almost flat at 106.481 after reaching a daily high at 106.975. US Treasury yields are also down, led by the US 10-year benchmark note coupon diving ten bps, sitting at 2.680%. These aforementioned factors are a tailwind for the New Zealand dollar, though it has barely blinked, as some analysts see the current reaction as a “misreading” of what the Fed is doing and will do.

Analysts at BBH said that the Fed “… noted that spending and production are softer while job gains remain robust. Lastly, the statement noted that balance sheet reduction is proceeding at its announced pace. All of this was pretty much as expected. There was no hint of a pause or that the Fed is even thinking about a pause.”

They added, “The initial market response was that the Fed had pivoted. We wholeheartedly disagree.”

Aside from this, US Initial Jobless Claims for the week ending on July 23 increased by 256K, higher than estimations but lower than the previous week’s 261K.

What to watch

The New Zealand economic docket will feature the ANZ Consumer Confidence for July, foreseen at 79. On the US front, the calendar will feature the core and headline PCE Price Index for June, the Chicago PMI, and the University of Michigan Consumer Sentiment for July.

NZD/USD Price Analysis: Technical outlook

The NZD/USD remains neutral-to-downward biased, despite jumping in two-volatile trading sessions, namely Wednesday and Thursday. If NZD/USD buyers break above the 50-day EMA at 0.6307, the next resistance would be the June 16 daily high at 0.6395. Otherwise, the NZD/USD first support would be 0.6200, which, once cleared, would open the door for a test of the 20-day EMA at 0.6192.