NZD/USD bulls flirt with 0.6450 with eyes on RBNZ, FOMC Minutes

• NZD/USD grinds higher after refreshing a two-month low on Friday.
• NZIER Shadow Board joins market expectations to recommend a 50 bps RBNZ rate hike.
• Easing inflation fears highlight Fed minutes for clear directions.
• China data dump could direct intraday moves; risk catalysts are important too.

NZD/USD remains sidelined around mid-0.6400s after posting the most significant weekly gains in two years, as traders remain cautious ahead of the key data/events. In doing so, the Kiwi pair paid a little heed to the recently hawkish comments from the New Zealand Institute of Economic Research (NZIER) Shadow Board during Monday’s initial Asian session.

NZIER Shadow Board recently recommended that the Reserve Bank of New Zealand (RBNZ) hike the OCR by 50 basis points in August and follow up with further tightening. The NZD/USD pair traders appeared to know the same already and ignored the news ahead of Wednesday’s RBNZ announcement, and today’s monthly data dump from China.

In addition to the pre-RBNZ anxiety, mixed headlines surrounding China and the US also troubled NZD/USD traders in extending the previous weekly gains.

A probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), appeared to have favored the risk-on mood. Also positive for the mood were headlines suggesting improved coronavirus conditions in China's financial hub Shanghai.

However, the increased count of the US lawmakers who is visiting Taiwan challenges the sentiment.

During the last week, softer prints of the US Consumer Price Index (CPI) and the Producers Price Index (PPI) managed to ease the market’s fears and favored the Antipodeans. In addition, the hawkish bias for this week’s RBNZ offered additional help to the NZD/USD bulls in leading the G10 currency pairs.

Even so, Richmond Federal Reserve (Fed) Bank President Thomas Barkin said on Friday that he wants to raise interest rates further to bring inflation under control. Even so, the policymaker added that he would watch the US economic data to decide how big a rate hike to support at the Fed's next meeting in September. "I'd like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory," Barkin told CNBC, per Reuters.

Previously San Francisco Fed President Mary Day backed opportunities of witnessing another 75 basis points (bps) of a rate hike in September, while also suggesting an upfront 0.50% rate hike to be sure.

Also, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evans stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

With this, Wall Street closed firmer but the S&P 500 Futures print mild losses at the latest. That said, the US 10-year Treasury yields closed mildly negative, down 5.6 basis points (bps) to 2.83%, but remains sidelined at around 2.84% at the latest.

China’s monthly Retail Sales and Industrial Production for July will offer immediate directions. However, major attention will be given to the RBNZ Monetary Policy Decision, amid hopes of a 0.50% rate hike. Also important will be to the Federal Open Market Committee (FOMC) Minutes.

Technical analysis

A downward sloping resistance line from late April, around 0.6455 by the press time, appears a tough nut to crack for the NZD/USD bulls amid nearly overbought RSI. The same requires the Kiwi pair buyers to remain cautious while the sellers expect a pullback towards the high marked in mid-June around 0.6395.