NZD/USD rallies into mid-0.6500s, eyes monthly highs at end of strong week

NZD/USD is on the front foot on Friday amid a strong end to what has, for the most part, been a strong week for risk assets and global commodity markets. The pair was last trading in the 0.6530s, up around 0.9% on the day, taking its gains on the week to around 2.0%, reflective of the fact that the kiwi has been one of this week’s best performing G10 currencies. The pair is eyeing a test of monthly highs in the 0.6560s.

Lifting the mood in recent trade and also somewhat weighing on the US dollar was US Core PCE inflation data for April that lent support to the idea that price pressures in the US have peaked, thus reducing the pressure on the Fed to tighten monetary policy quite so aggressively. But the kiwi has also derived support from domestic New Zealand factors this week, which go some way in explaining its outperformance versus most of the rest of its non-US dollar G10 peers.

The RBNZ raised interest rates by 50 bps to 2.0% as expected on Wednesday, but signaled a much more hawkish than expected path for interest rates in the quarters ahead, with the bank expecting to have lifted rates to nearly 4.0% in 2023. At this point, the RBNZ is comfortably the most hawkish central bank in the G10 and this has helped NZD/USD rebound around 5.0% in the last two weeks from earlier monthly lows in the low 0.6200s.