NZD/USD slumps below 0.6200 as RBNZ offers no hawkish surprise with 25 bps rate hike

• NZD/USD drops nearly 50 pips even as RBNZ matches rate hike expectations.
• RBNZ matches market expectations of announcing 0.25% OCR hike.
• Pullback in US Dollar, Treasury bond yields put a floor under Kiwi pair prices.
• RBNZ’s Orr, US debt ceiling negotiations and Fed Minutes are the key for further directions.

NZD/USD nosedives nearly 50 pips to 0.6190 as it fails to cheers the Reserve Bank of New Zealand’s (RBNZ) 25 basis points (bps) of rate hike on early Wednesday.

RBNZ announces 0.25% increase to its Official Cash Rate (OCR), as expected, during May month monetary policy meeting. It’s worth noting that the RBNZ defends its cash rate peak at 5.5% and exert downside pressure on the NZD/USD prices.

Also read: Breaking: RBNZ hikes rates by 25 bps to 5.50% in May, widely expected

Earlier in the day, New Zealand’s first quarter (Q1) Retail Sales marked a contraction of 1.4% QoQ versus -0.4% expected and -0.6% prior while the YoY figures dropped to -4.1% versus -4.0% previous readings.

It’s worth observing that the US Dollar Index (DXY) retreat eclipsed the NZ data-led pessimism for the NZD/USD earlier in the day. That said, the greenback’s gauge against the six major currencies struggles to extend two-day advances at the highest levels in nine weeks, grinding near 103.50 by the press time.

While tracing reasons for the US Dollar’s latest pullback, a lack of progress in the talks to avoid the US debt ceiling expiration and fears that the US may mark the ‘catastrophic’ default gain major attention. Additionally, the latest retreat in the US Treasury bond yields also challenges the greenback ahead of the key Fed Minutes. Even so, hawkish Fed bets and recently upbeat US data keep the USD bulls hopeful, which in turn prod the NZD/USD run-up.

While portraying the market’s mood, S&P500 Futures ignore Wall Street’s downbeat performance to print mild gains whereas the US 10-year and two-year Treasury bond yields retreated from the highest levels since early March the previous day.

Having witnessed the initial market reaction to the RBNZ Interest Rate Decision, the NZD/USD pair traders will keep their eyes on a press conference by RBNZ Governor Adrian Orr. Should the policymaker manages to defend the hawkish bias, the Kiwi pair may have further upside to track, especially amid the recent retreat in the US Dollar.

Following that, major attention will be given to the US debt ceiling talks and Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting for clear directions. If the US policymakers manage to overcome the default fears, as well as the Fed Minutes appear hawkish, the US Dollar may regain its charm and can exert downside pressure on the NZD/USD price.

Technical analysis

A daily closing below a one-month-old ascending support line, around 0.6225 by the press time, becomes necessary for the NZD/USD bears to retake control. Until then, the hopes of witnessing another battle with the key resistance line stretched from early February, close to 0.6385 at the latest, can’t be ruled out.