NZD/USD approaches 0.6250 as USD Index resumes downside journey

• NZD/USD is marching towards 0.6250 aid rising bearish bets for the USD Index.
• The street is anticipating that tight credit conditions by US banks are sufficient to soften inflation ahead.
• Dismal economic prospects of New Zealand after the flood situation have raised concerns over the growth rate.

The NZD/USD pair witnessed a sharp recovery after defending the 0.6180 support. The Kiwi asset has stretched its recovery perpendicularly above 0.6230 in the early European session. The upside bias for the Kiwi asset banks upon weakness in the US Dollar.

The US Dollar Index (DXY) has resumed its downside journey after short-term support of around 102.60. The USD Index has corrected further as investors are discounting expectations of a steady monetary policy by the Federal Reserve (Fed) for its May policy meeting. As per the CME Fedwatch tool, more than 60% odds are in favor of an unchanged monetary policy.

The street is anticipating that tight credit conditions by United States commercial banks are sufficient to soften inflation ahead. Therefore, Fed chair Jerome Powell won’t go for rate hikes as it could harm the economic outlook.

S&P500 futures are showing choppiness after a three-day winning spell. Meanwhile, global tensions have renewed as the Russian Defence Ministry cited that missile ships of the Pacific Fleet fired Moskit cruise missiles at a mock enemy sea target in the waters of the Sea of Japan,” as reported by Reuters. The risk profile has not been impacted and the risk appetite is still strong.

On the New Zealand Dollar front, dismal economic prospects after the flood situation have raised concerns over the growth rate. Analysts at ANZ Bank expect the Reserve Bank of New Zealand (RBNZ) will raise the Official Cash Rate (OCR) by 25bp to 5.00% at its Monetary Policy Review (MPR) next Wednesday. The deceleration in the pace of rate hikes is optimal for decelerating economy. The report from ANZ Bank also dictates that the OCR would peak at 5.25% with one more hike to come in May.