NZD/USD sticks to post-RBNZ gains near multi-month high, focus shift to FOMC minutes

• NZD/USD rallies back to a multi-month high after the RBNZ announced its policy decision.
• The prevalent USD selling bias provides an additional lift to the pair and remains supportive.
• The RBNZ’s warning of a deeper economic downturn keeps a lid on any meaningful upside.
• Traders also seem reluctant ahead of important US macro data and the key FOMC minutes.

The NZD/USD pair catches fresh bids on Wednesday and jumps closer to a multi-month top in reaction to a more hawkish Reserve Bank of New Zealand (RBNZ). The pair maintains its bid tone through the early part of the European session, with bulls still awaiting a sustained strength beyond the 0.6200 round-figure mark before positioning for further gains.

As was widely anticipated, the RBNZ raised its benchmark rate by a record 75 bps to 4.25% - the highest since the 2008 financial crisis - and provided a goodish lift to the domestic currency. This, along with some follow-through US Dollar selling, is seen acting as a tailwind for the NZD/USD pair. Despite the supporting factors, spot prices lack any follow-through buying in the wake of the RBNZ's warning of a potential economic downturn in the near term.

Furthermore, investors remain concerned about a new COVID-19 outbreak in China and the imposition of fresh lockdown measures. This, along with fears of a further escalation in the Russia-Ukraine conflict, is seen as acting as a headwind for the risk-sensitive Kiwi. The US Dollar, on the other hand, remains on the defensive amid expectations that the Fed will slow the pace of its policy tightening and deliver a relatively smaller 50 bps rate hike in December.

That said, the recent hawkish signals by various Fed officials suggest that the US central bank is still far from pausing its rate-hiking cycle. Adding to this, a modest uptick in the US Treasury bond yields lends some support to the greenback and further contributes to capping the NZD/USD pair. Traders also seem reluctant and prefer to wait for a fresh catalyst from the release of the November FOMC meeting minutes, due later during the North American session.

Market participants will look for fresh clues about the Fed's policy outlook and future rate hikes. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD pair. In the meantime, the US economic docket - featuring the releases of Durable Goods Orders and the usual Weekly Initial Jobless Claims - might assist traders to grab short-term opportunities.

Technical levels to watch