NZD/USD breaks below 0.6230 mark as hardline Republicans oppose universal Federal guarantee

• NZD/USD is under pressure as a group of republicans challenges universal federal guarantee.
• Investors cautious ahead of FOMC meeting: hike by 25bps or pause.
• RBNZ follows BoJ and declines Fed’s swap line offer.

NZD/USD is facing pressure as headlines report that hardline US Republicans are opposed to bank deposit guarantees beyond the $250,000 limit.

Some Republicans have suggested that the Federal Reserve (Fed) should unwind its extraordinary funding facilities, arguing that a universal guarantee on all bank deposits sets a dangerous precedent, encouraging future irresponsible behavior.

According to earlier reports, some banking groups have requested universal guarantees from the Federal Deposit Insurance Corp (FDIC) on all bank deposits due to deteriorating banking conditions. Bloomberg reported on Monday that US officials were considering expanding FDIC coverage to all deposits, a measure implemented during the 2008 crisis but now requiring congressional approval.

On Monday, markets were buoyed by various liquidity options, such as the swap line, the UBS-Credit Suisse merger, and the potential FDIC extension. However, it appears that the FDIC may struggle to cover all bank deposits, which could be a significant setback for depositors.

As the FOMC meeting approaches, investors remain divided on whether to expect a 25 basis point (bps) rate hike or a pause. Currently, the market is leaning towards a 25 bps increase.

Regarding the swap line opened by the Fed, the Reserve Bank of New Zealand (RBNZ) has followed the Bank of Japan (BoJ) in stating that there is no immediate need for it.

Earlier, New Zealand's Trade Balance data for February was released, with exports at $5.23 billion, down from $5.47 billion previously,  and imports at $5.95 billion compared to $7.42 billion previously.

Levels to watch