New Zealand dollar extends gains

The New Zealand dollar continues to gain ground after posting a strong week. NZD/USD has jumped 1.04% today and is trading at 0.6472.

New Zealand dollar ends rough slide

After a massive 7-week slide, which saw a decline of some 550 points, NZD/USD rebounded last week with a gain of 1.88%. The rally has continued on Monday, as the US dollar has fallen out of favour with investors.

Still, I don’t want to sing the praises of the New Zealand dollar too loudly, as this sharp upward swing is really a story of the US dollar. The US economy has been performing well, but there are growing fears that the economy is headed into a recession and the Fed’s aggressive rate cycle is more than the economy can handle. Fed Chair Powell has assured the markets that he can guide the economy to a soft landing. It wasn’t all that long ago that the same Powell was assuring the markets that inflation was transient, and by the time he “retired the T-word”, it was painfully clear that the Fed was way behind the inflation curve.

With the Fed signalling that it will deliver supersize 0.50% rate hikes at June and July meetings, it promises to be an interesting summer. Any signs that the economy is close to a recession could upset the Fed’s plans, which could translate into volatility in the financial markets.

The Reserve Bank of New Zealand meets on Wednesday and is widely expected to hike rates by 0.50% and provide guidance for further 0.50% increases. Prior to the meeting, New Zealand releases Retail Sales for Q1. Consumer spending has been strong, hitting 8.6% in Q4 2021. Another solid increase will put further pressure on the RBNZ to act aggressively and would be bullish for the New Zealand dollar.

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NZD/USD Technical

• NZD/USD is testing resistance at 0.6475. Above, there is resistance at 0.6540.
• There is support at 0.6352 and 0.6287

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