NZD/USD bounces off intraday low to near 0.6250 on New Zealand’s no-frills budget

• NZD/USD picks up bids to pare intraday losses, sluggish of late.
• New Zealand Treasury expects no recession, delays budget surplus by one year.
• US Dollar grinds higher amid cautious optimism surrounding US default.
• Light calendar restricts immediate Kiwi pair moves, may allow consolidation of weekly gains.

NZD/USD struggles to cheer New Zealand’s (NZ) no-frills budget as it stays defensive near 0.6250 during early Thursday, despite recently bouncing off intraday low. The reason could be linked to the US Dollar’s latest grinding towards the north, after refreshing the multi-day high the previous day.

New Zealand Treasury expects the economy to avoid recession while also anticipating a return to budget surplus delayed one year to 2026. While announcing the annual budget, NZ Finance Minister Grant Robertson also said, “Recent widening of current account deficit expected to reverse.”

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On the other hand, US Dollar Index (DXY) buyers struggle to keep the reins at the highest levels in seven weeks, sluggish near 102.85-80 by the press time. The US Dollar’s latest inaction could be linked to the cautious mood due to the nearness to the US debt ceiling expiry of early June and doubts about the US policymakers’ ability to strike a deal on multiple issues that can help solve the debt-limit problem.

However, the US policymakers’ ability to convince the markets that they can avoid the ‘catastrophic’ default joined upbeat US data and hawkish Fed talks to favor the US Dollar of late.

On Wednesday, US House Speaker Kevin McCarthy said in an interview on CNBC, "Now we have an opportunity to find common ground but only a few days to get the job done." Further, US President Joe Biden said that he is confident that they will be able to reach a budget agreement and noted that it would be catastrophic if the US failed to pay bills, per Reuters. "Will have a news conference on Sunday on the debt issue,” added US President Joe Biden.

Talking about the data, US Housing Starts came out as unimpressive with 1.401M figures for April versus 1.4M expected and 1.371M prior (revised). Alternatively, the Building Permits for the said month eased to 1.416M from 1.437M edited previous readings and market forecasts. Before that, upbeat US Retail Sales and Industrial Production details for April allowed the Federal Reserve (Fed) officials to remain hawkish and prod the risk-on mood. The latest among them were Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic who reiterate inflation fears and favored the NZD/USD bears.

At home, New Zealand’s first quarter (Q1) Producer Price Index Input and Output numbers ease to 0.2% and 0.3% respectively versus 0.5% and 0.9% priors in that order. It’s worth noting that these figures are way below the market forecasts of 1.5% and 1.3% for Input and Output respectively.

Against this backdrop, S&P 500 Futures print mild losses despite the upbeat Wall Street close whereas the US Treasury bond yields remain sidelined at the multi-day top. That said, the US 10-year and two-year Treasury bond yields rose to the highest levels since May 01 and April 24 while portraying a four-day uptrend near 3.57% and 4.16% respectively, easing to 3.55% and 4.13% by the press time.

Looking ahead, risk catalysts will be key to watch amid a light calendar.

Technical analysis

NZD/USD remains sidelined between the 100-DMA and 50-DMA, respectively near 0.6275 and 0.6230, amid downbeat oscillators.