NZD/USD Market Outlook
The New Zealand dollar (NZD) has been rising against the US dollar (USD) recently, with the NZD/USD pair experiencing a surge of 1.65%. This rise has been driven by bullish investor sentiment, which has seen the pair rise from its daily low of 0.6134 to a high of 0.6264 at the time of writing.
The NZD’s rise can be partly attributed to a rebound of risk currencies from quarterly lows. This rebound was sparked by regulators stepping in to protect depositors following the collapse of SVB, a major financial institution.
As a result, investors have begun seeking safer options, leading to drops in bond yields and a corresponding boost for risk currencies like the NZD.
Meanwhile, the USD has been struggling due to the drop in bond yields caused by the SVB collapse. During the New York session, the two-year note was hovering near 4%, a significant drop from last week’s high of 4.5%. This drop marks the largest decline in bond yields since the financial chaos of 2008.
The market is currently undergoing a repricing of the Federal Reserve’s terminal rate, with analysts and investors predicting that the rate will be lower than previously expected. According to recent reports, the terminal rate is expected to dip to 4.14% by December, down from the previous estimate of 5%.
Futures also indicate a 21% chance that there will be no more rate hikes when the Federal Open Market Committee (FOMC) meets in two weeks.
ANZ bank analysts have suggested that contagion fears are looming and that the Federal Reserve may reconsider its stance and raise rates once more before ceasing rate hikes completely and possibly even cutting back in September.
There are concerns that further interest rate increases could harm consumer spending and confidence, potentially causing more damage to the economy. While many questions and uncertainties surround this issue, volatility is expected for the short term in the Consumer Price Index (CPI).
In New Zealand, the NZD raised interest rates by 50 basis points in February, bringing the total rate hike by the Reserve Bank of New Zealand (RBNZ) to 450 basis points over the last ten meetings. This move has resulted in a record high of 4.75% for interest rates, the highest in 41 years.
EUR/USD Market Outlook
In Monday’s trading session on Wall Street, the EUR/USD pair saw an uptick of 0.9%, which was aided by a weakening USD ahead of the European Central Bank’s (ECB) monetary policy meeting on Thursday and the US Consumer Price Index (CPI) data on Tuesday.
The market is anticipating a 0.50% interest rate hike by the ECB, with hawkish signals staying put. According to analysts at Rabobank, the CPI data will show stubborn price pressures remaining at 6% year over year, which is well above the ideal 2% inflation rate.
However, the analysts also noted that if the Federal Reserve steps away from rate hikes, it will have to deal with credibility issues. For years, the Fed has iterated that there are better tools to tackle inflation in a country than monetary policy.
Technical indicators reveal that the EUR/USD pair is approaching a key resistant area, and a correction may be due to create even ground in the pair’s bids. The daily chart puts the resistance in the range of 1.6000-1.650.