NZD/USD struggles to justify RBNZ’s optimism near 0.6200, Fed’s favorite inflation gauge eyed

• NZD/USD remains sidelined after reversing from one-month high in the last week.
• RBNZ’s Hawkesby cites fears of increasing floods but stated that the NZ banks are resilient.
• Markets remain sluggish mixed concerns about banks, geopolitics.
• China’s official PMIs, US Core PCE inflation eyed for clear directions.

NZD/USD portrays the market’s inaction by making rounds to 0.6200 during early Monday, following a downbeat weekly closing. In doing so, the Kiwi pair fails to justify the Reserve Bank of New Zealand’s (RBNZ) cautious optimism, as well as mildly positive sentiment, amid a light calendar, mixed news and anxiety ahead of the top-tier data from the US and China.

Earlier in the day, Reserve Bank of New Zealand (RBNZ) Deputy Governor Christian Hawkesby pushed back the fears of banking fallouts in New Zealand (NZ) even as the Pacific nation is likely to witness more floods. “The capital ratios of the country's banks will remain resilient during most severe weather events though more studies were needed to understand how they could potentially compound with other risks to the financial system,” said RBNZ’s Hawkesby.

On the other hand, a light calendar and a lack of major macros challenge the momentum traders of the NZD/USD pair.

Talking about positives, Bloomberg’s news surrounding the Silicon Valley Bank (SVB) seemed to have contributed to the risk-on mood. “First Citizens BancShares Inc. is in advanced talks to acquire Silicon Valley Bank after its collapse earlier this month, according to people familiar with the matter,” said Bloomberg. On the same line were comments from Minneapolis Fed President Neel Kashkari who flagged fears of US recession and tamed calls for more rate hikes from the US central bank.

Meanwhile, news about Russia’s shifting of nuclear weapons near Belarus joins the mostly upbeat US data and the previously hawkish Fed speak to weigh on the Kiwi pair. “The North Atlantic Treaty Organization (NATO) NATO on Sunday criticized Vladimir Putin for what it called his ‘dangerous and irresponsible’ nuclear rhetoric, a day after the Russian president said he planned to station tactical nuclear weapons in Belarus,” per Reuters.

On Friday, Durable Goods Orders for February dropped by 1.0% versus January's fall of 5% (revised from -4.5%) and the market expectation for an increase of 0.6%. Details suggested that the figure for Durable Goods Orders ex Defense and ex Transportation were also downbeat but Nondefense Capital Goods Orders ex Aircraft came in firmer-than-expected 0.0% to 0.2%, versus 0.3% prior. Moving on, the preliminary readings of the US S&P Global PMIs for March came in firmer as the Manufacturing gauge rose to 49.3 from 47.3 in February, versus 47.0 expected, while Services PMI rose to 53.8 from 50.6 prior and 50.5 expected. With this, the S&P Global's Composite PMI increased to 53.3 from 50.1 in February, versus 50.1 market forecasts.

Following the US data, Atlanta Fed President Raphael Bostic told NPR that it was not an easy decision to raise the policy rate while also adding that he is not expecting the economy to fall into recession. Further, St. Louis Federal Reserve President James Bullard, a policy hawk, said on Friday that the response to the bank stress was swift and appropriate, allowing the monetary policy to focus on inflation, per Reuters. The policymaker also added that the projections suggest one more rate hike that could be at the next FOMC meeting or soon after.

Moving on, the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, becomes necessary for the NZD/USD pair traders to watch ahead of China’s official activity data for March.

Technical analysis

Although a convergence of the 21-DMA and a two-week-old ascending support line challenges NZD/USD bears around 0.6200, the recovery moves remain elusive unless the quote stays below the 50-DMA level of around 0.6295.