- During the week, the New Zealand dollar is down 0.82%.
- The market sentiment is mixed as US equities rally alongside safe-haven currencies.
- The Fed to hike 75 bps in the July meeting, as shown by June’s FOMC minutes.
The New Zealand dollar drops for the second straight day but trades within the boundaries of Tuesday’s price action, just above the weekly low at around 0.6150s, following the release of the US Federal Reserve June meeting minutes. At 0.6152, the NZD/USD portrays a risk-off mood in the FX space, though US equities are rising.
NZD/USD drops due to risk-off mood and a strong US dollar
The kiwi has been under downward pressure as well as most G8 currencies. A buoyant greenback courtesy of worldwide recession fears, another China coronavirus outbreak, and elevated inflation spurred safe-haven flows since Tuesday. The US Dollar Index, a gauge of the greenback’s performance vs. six currencies, rose above the 107.000 mark for the first time since December 2002, reaching a 20-year high at 107.264.
Concerning the awaited US Federal Reserve’s minutes, FOMC pledged to its hawkish posture, and policymakers agreed that a 75 bps rate hike is warranted. Fed officials noted that even a “more restrictive stance” could be appropriate if inflation prevails while acknowledging that economic growth risks are skewed to the downside.
In the meantime, the US 2s-10s yield curve has remained inverted since Tuesday late in the North American session. Analysts at ING commented, “Inverted yield curves are typically bad news for pro-growth currencies (commodity exporters + Europe & Asia ex-Japan) and typically good news for the dollar and the Japanese yen and Swiss franc. This environment looks set to continue over the summer months as the Fed continues to push ahead with tightening.”
Elsewhere, an absent New Zealand economic docket left NZD/USD traders adrift to US economic data and market sentiment.
Earlier during the New York session, the US docket featured S&P Global and US ISM Services and Composite PMIs, with figures beating expectations but trailing previous readings. That illustrates a gloomy scenario as the US economic growth slows down.
The week ahead, the US economic docket will feature ADP Employment Change, Initial Jobless Claims, and Fed speakers on Thursday.
