NZD/USD:FUNDAMENTAL ANALYSIS + TECHNICAL VIEW | SHORT SETUP

NZD/USD bears in control as US dollar firms

NZD/USD under pressure as US dollar firms.
RBNZ pricing vs. the Fed is the focus.
At 0.6944, NZD/USD is trading lower on the day so far by some 0.23% after sliding from a high of 0.6963. The US dollar is firm in the open following its sixth weekly gain in the past seven. DXY, an index that measures the US dollar vs. a basket of currencies is trading 0.3% higher at 99.100.

The dollar has benefited from its status as a safe haven and the conflict in Ukraine has driven expectations the Federal Reserve will hike interest rates. Meanwhile, the New Zealand dollar has ensconced itself in what seems like a comfortable “groove” in the mid to high 0.69s, analysts at ANZ Bank said.

''Very little is going on domestically but markets now pretty fully priced for upcoming hikes (although 50bp hikes aren’t fully priced in, a high risk of them is). Rates aren’t likely to do a lot more (themselves or for the NZD) until we actually get the RBNZ decision on 13 April.''

However, the analysts added, ''but it’s a different story across the Tasman, where odds of RBA hikes continue to grow, with a full hike priced in by June and “6½” hikes priced in by year-end. This is actually what seems to be driving the NZD at present, and it looks like the question is, does NZD/USD break higher?''

RBNZ pricing
With respect to the Reserve bank of New Zealand and pricing in the market, analysts at Westpac argued that markets are now overpricing the likely extent of OCR hikes over the next couple of years.

''If we’re right about that though, what would prompt the market to correct? We think it will come down to the evidence that monetary policy is already getting enough traction – cooling down the housing market, and ultimately slowing consumer demand to more sustainable levels,'' the analysts added.

''We’re already seeing the evidence on that first part, with house prices falling by 3% over the last three months. We expect further declines as the higher level of mortgage rates continues to do its work, and we’re forecasting house prices to drop by around 10% in total over the next two years."