NZD/USD traders await the RBNZ

The New Zealand Dollar rallied to the highest levels in over six weeks, amid a weakening US Dollar and poor US data. At the time of writing, NZD/USD is sitting in the 0.63 area, although as analysts at ANZ Bank said,  ´´it is struggling to capitalize on the freefall in the USD DXY (which is approaching February’s low) in the wake of soft JOLTS jobs data there, and fresh financial instability fears.´´

The greenback was pressured after a plunge in US factory activity raised concerns over slowing economic growth. The US manufacturing PMI fell in March to the lowest since May of 2020. US factory orders declined for a second straight month, down 0.7% in February after falling 2.1% in January from the 1.7% jump in December. This data comes on the heels of the Institute for Supply Management (ISM) that yesterday reported that its Manufacturing PMI fell to 46.3 last month. This was the worst since May 2020, from 47.7 in February.  Last week’s PCE data, the Federal Reserve´s preferred inflation measure, was also mixed and weighed on the greenback. However, while headline and core both came in a tick lower than expected, super core accelerated for a second straight month to 4.63% YoY which is the highest since October.  ´´This is not the direction that the Fed desires and so we look for the hawkish tilt in Fed comments to continue,´´ analysts at Brown Brothers Harriman explained. 

RBNZ in focus

´´While the Kiwi is at the upper end of recent trading ranges, it is well off its February high, and it has underperformed on major crosses,´´ analysts at ANZ Bank said. ´´A bullish take on that is that there is plenty of room for that gap to be closed without significant technical barriers. A hawkish RBNZ today might help with that today, especially if the focus is on rebuilding and resilience, rather than engineering a recession. But what happens in the US matters an awful lot too!´´

´´We continue to forecast the OCR to peak at 5.25% with one further hike in May. Yesterday’s release of the Quarterly Survey of Business Opinion provided little to suggest any change to how the RBNZ behaves today. Business sentiment has improved, lifting off a record low. However, 61% of respondents expect conditions to deteriorate, versus 74% in Q4 and a historical average of -7%,´´ the analysts said.

It is wirth noting that the RBNZ has lifted its policy rate by a total of 450 basis points, bringing the cash rate to a 41-year record of 4.75%, well above the RBNZ's medium-term target of 1%-3%.