NZDUSD aims to test 0.6200 amid escalating hawkish RBNZ bets

• NZDUSD is hovering around 0.6160 as investors await the People’s Bank of China’s monetary policy.
• Federal Reserve policymaker Bostic doesn’t see a continuation of the 75 bps rate hike regime in the December meeting.
• The Reserve Bank of New Zealand may shift to a 75 bps rate hike to curtail the historic surge in inflationary pressures.
• NZDUSD is aiming to recapture 0.6200 as the Reserve Bank of New Zealand’s bigger rate hike will trim Fed-RBNZ policy divergence.

NZDUSD is displaying a sideways performance around 0.6160 in the early Tokyo session as investors are awaiting the release of the interest rate decision by the People’s Bank of China (PBOC). While the ultimate trigger that will guide decisive action will be the announcement of the monetary policy by the Reserve Bank of New Zealand (RBNZ) this week.

NZDUSD is looking to recapture the critical resistance of 0.6200 after a decline on Friday as escalating tensions between North Korea and the United States forced market participants to safeguard themselves behind the US Dollar Index (DXY). The US Dollar picked bids around 106.40 and accelerated to near the round-level resistance of 107.00. At the press time, the US Dollar is struggling around 107.00 amid a quiet market mood.

The returns on US government bonds are expected to face immense pressure on commentary from Federal Reserve (Fed) President Raphael Bostic over interest rate guidance. Federal Reserve policymaker cited on Saturday that the central bank is ready to "move away" from three-quarter-point rate hikes at the Fed's December meeting, reported Reuters. He further added that Fed's target policy rate will add no more than another percentage point to tackle inflation.

US Durable Goods Orders data hogs limelight

This week, the release of the US Durable Goods Orders data will be of utmost importance. The economic data is seen stable at 0.6%. Consistency in the demand for durable goods is a cause of worry for Federal Reserve chair Jerome Powell and his teammates. The Federal Reserve is developing strategies to bring a slowdown in the overall demand so that manufacturers and service providers would leave with no incentive of keeping price growth stable or higher. Also, sustainability in demand for durable goods in times of accelerating interest rates is exposing the economy to economic turmoil. Households are banking upon higher interest obligations led by restrictive monetary policy by the Federal Reserve. This could result in an increment of the bank’s delinquency cost ahead.

In case of a better-than-expected release of the US Durable Goods Orders data, the Federal Reserve will be required to continue its bigger rate hike regime. This may support the US Dollar to register more gains ahead.

Reserve Bank of New Zealand may shift to a 75 bps rate hike ahead

To tackle the historic surge in inflationary pressures, the Reserve Bank of New Zealand is continuously hiking its Official Cash Rate (OCR). Reserve Bank of New Zealand Governor Adrian Orr has already announced five consecutive 50 basis points (bps) rate hikes to 3.5% and has no intention to pause in near future. Although, the policymaker is expected to go for a bigger extent to safeguard New Zealand Dollar and seal inflation as early as possible. 60% of economists polled at Reuters favored a shift in monetary policy rate hike regime to 75 bps to curtail the significant surge in the inflation rate to 7.2%. Contrary to its neighboring country Australia whose Reserve Bank of Australia (RBA) has trimmed its rate hike pace to support the prices of the real estate market and consumer spending, the kiwi central bank looks set to push its interest rate to 4.25%.

The move could strengthen the New Zealand Dollar ahead but will leave less room for more rate hikes by the Reserve Bank of New Zealand. Also, this will shift more responsibilities on economic dynamics to play ahead.

Rising Covid-19 cases call for a dovish People’s Bank of China policy

Easing in Covid-19 restrictions in China has not started yet and the numbers of infections are sky-rocketing. Investors are in dilemma whether to turn risk-averse due to accelerating Covid-19 cases or pour liquidity as restrictions on the movement of men, materials, and machines are waiving now. This has trimmed economic projections ahead. Adding to that, vulnerable real estate demand has also impacted market sentiment. This may compel the People’s Bank of China to sound dovish while announcing the monetary policy on Monday. Also, a dovish commentary on interest rate guidance will cheer the market mood.

Investors should be aware of the fact that New Zealand is a leading trading partner of China and an expansionary monetary policy by the People’s Bank of China will strengthen New Zealand Dollar bulls ahead.

NZDUSD Technical Outlook

NZDUSD is attempting to cross the supply zone placed in a narrow range of 0.6163-0.6200 on a daily scale. The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bullish cross around 0.5880, which adds to the upside filters. While the 200-period EMA at 0.6200 still needed to be conquered for a sheer rally.

The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that bullish momentum has been activated.