NZD/USD drops firmly below 0.6100 as RBNZ’s interest rates climb beyond peak consideration

• NZD/USD has dropped sharply below 0.6100 as the RBNZ to pause further rate hikes sooner.
• The US Dollar Index has printed a fresh 10-week high at 103.99 amid a delay in US debt-ceiling issues.
• The RBNZ believes that it has moved the interest rate needle beyond its prior peak consideration.

The NZD/USD pair has slipped sharply below the round-level support of 0.6100 in the Tokyo session. The Kiwi asset has faced immense selling pressure after Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr commented on the drawbacks of pushing interest rates well above what was previously considered neutral.

S&P500 futures have trimmed some gains posted in early Asia. The overall market mood is cautious as the United States economy is swiftly approaching a default situation. US Treasury Secretary Janet Yellen is consistently warning the White House that it will be out of funds by June 01 if the borrowing limit remained stagnant.

The US Dollar Index (DXY) has printed a fresh 10-week high at 103.99 amid a delay in US debt-ceiling issues. US President Joe Biden and other congressional leaders are not ready to accept partisan terms from Republicans, which include the removal of additional tax on the Wealthy community and higher spending proposed in the budget.

Meanwhile, the weak certainty of an interest rate hike in June by the Federal Reserve (Fed) has failed to make any impact on the USD Index. Fed policymakers are favoring a hold in the rate-hiking spell for June as tight credit conditions by US regional banks are weighing on inflationary pressures.

On Wednesday, the RBNZ hiked its Official Cash Rate (OCR) by 25 basis points (bps) to 5.50%. RBNZ Orr believes that the central bank has gone beyond what was previously considered neutral. He further added, there were risks that the central bank would need to raise rates due to sticky inflation expectations and continued government spending. If the RBNZ believes that it has moved above its prior peak consideration, room for further rate hikes is extremely less.