Forex world

November 24, 2022

NZD/USD bulls expose to 0.6300

- NZD/USD has surpassed the crucial hurdle of 0.6250 amid solid risk-on impulse.

- Federal Reserve policymakers are supporting the interest rate hike slowdown regime to reduce financial risks.

- The Reserve Bank of New Zealand sees the interest rate peak at 5.5%.

- NZD/USD is aiming to smash the round-level resistance of 0.6300 as RBNZ-Fed policy divergence has widened.

NZD/USD is advancing firmly after overstepping the critical resistance of 0.6250 in the Asian session. The Kiwi Dollar has gained significant traction as the extent of optimism is skyrocketing in the currency market. The asset has continued its two-day winning streak and has refreshed its three-month high at 0.6270. The major is exposed to kiss the round-level resistance of 0.6300 amid no signs of amelioration in the positive market sentiment.

A significant jump in investors’ risk appetite has weakened demand for the US Dollar. The US Dollar Index (DXY) is falling like a house of cards and has surrendered the cushion of 106.00. The mighty US Dollar is looking to test three month low at 105.34. Meanwhile, S&P500 futures are displaying strength ahead of the US holiday on account of Thanksgiving Day. The 10-year US Treasury yields have slipped below 3.69% as investors see no continuation of 75 basis points (bps) rate hike spell for the fifth time by the Federal Reserve (Fed).

Federal Reserve policymakers vouched for decelerating interest rate hike pace

A satisfactory October inflation report has eased some troubles for the Federal Reserve policymakers. Fed chair Jerome Powell and his mates are continuously making efforts to bring price stability. A decline in the headline Consumer Price Index (CPI) has delighted the Federal Reserve, which is visible in Federal Open Market Committee (FOMC) minutes. The majority of Federal Reserve policymakers have vouched for a slowdown in the interest rate hike pace to reduce financial risks and to observe the progress of efforts yet made in the form of restrictive policy measures.

This has resulted in a significant fall in the US Dollar. Considering the persistent nature of inflation in the United States economy, Fed chair Jerome Powell will shift to a half-percent rate hike extent for December’s monetary policy meeting.

Upbeat United States Durable Goods Orders failed to cushion the US Dollar

Market participants always await indicators that depict demand by the households to make projections for Consumer Price Index (CPI) figures. The United States Durable Goods Orders data that display consumer demand for durables improved by 1% in October vs. the expectation and the prior release of 0.4%. This indicates that the consumer demand is robust and core CPI could display stagnancy ahead. This may end the plan of decelerating interest rates by the Federal Reserve.

It is worth noting that households in the United States are addressing expenses with lower real income. Also, higher interest rates will result in higher interest obligations on purchases of durable goods, which could result in accelerating delinquency costs for credit providers.

Reserve Bank of New Zealand sees interest rate peak at 5.5%

On Wednesday, Reserve Bank of New Zealand Governor Adrian Orr hiked its Official Cash Rate (OCR) by 75 bps. This has widened the Reserve Bank of New Zealand-Federal Reserve policy divergence. In order to tighten its fight against a historic surge in inflation, the Reserve Bank of New Zealand ditched its 50 bps rate hike regime and went for a bigger rate hike. Earlier, the RBNZ hikes its OCR 50 bps consecutively five times. Price pressure in the New Zealand economy has not displayed signs of exhaustion and a peak yet, therefore, policy tightening will continue to accelerate further. The Reserve Bank of New Zealand has also provided an interest rate peak of 5.5%.

Widened Reserve Bank of New Zealand-Federal Reserve policy divergence and hawkish interest rate guidance is likely to strengthen the Kiwi Dollar further and NZD/USD may smash 0.6300 sooner.

NZD/USD technical outlook

NZD/USD is marching towards the horizontal resistance placed from August 12 high at 0.6469 on a daily scale. The asset has comfortably established above the 61.8% Fibonacci retracement (placed from August 12 high at 0.6469 to October 13 low at 0.5560) at 0.6103. The pair has crossed the 200-period Exponential Moving Average (EMA) at 0.6233 for the first time in the past seven months.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which indicates more upside for the Kiwi Dollar.

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