New Zealand dollar hits 2-week high, Fed poised to hike

• New Zealand’s job numbers beat estimates
• Fed widely expected to deliver 25-bp hike
• NZD/USD extends gains

NZD/USD has extended its gains and is trading at 0.6219, up 0.18%. Earlier, NZD/USD touched a high of 0.6249, its highest level since April 19.

New Zealand employment data shines

New Zealand’s labour market hasn’t missed a step, despite the Reserve Bank of New Zealand’s aggressive tightening campaign. Employment change jumped 0.8% in Q1, above the consensus estimate of 0.4% and ahead of the upwardly revised 0.5% gain in the fourth quarter. The unemployment rate remained steady at 3.4%, just below the consensus estimate of 3.5%.

The RBNZ would likely have preferred a softer jobs report, as it needs the economy to slow down in order to push inflation lower. The benchmark cash rate stands at 5.25%, the highest in the G7. The central bank would love to take a pause or two and provide some relief to households, but it will need inflation to fall substantially before it can let up on rate hikes.

Attention will shift to the Federal Reserve, which winds up its 2-day meeting later today. The Fed is widely expected to deliver a 25-basis point hike, which would bring the cash rate to 5.25%. There is pressure on the Fed to take a pause, as inflation and employment have eased and the banking crisis is again sapping risk appetite.

US banks are in the spotlight as shares in two regional banks, PacWest and Western Alliance, fell sharply on Tuesday. This has raised investors’ alarm about the health of the banking sector, on the heels of JP Morgan scooping up the assets of First Republic Bank, which has become the largest US bank to fail since the 2008 financial crisis. The Fed is expected to address the bank crisis at today’s meeting.

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NZD/USD Technical

• NZD/USD is testing resistance at 0.6222. Above, there is resistance at 0.6332
• 0.6161 and 0.6072 are the next support levels

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