New Zealand Dollar rallies as RBNZ's Conway fuels rate hike bets
The NZD/USD pair attracts some dip-buyers during the Asian session on Tuesday, stalling the previous day's retracement slide from the vicinity of the 0.5800 mark or the monthly peak touched last week. Spot prices climb to the 0.5780 area in the last hour in the wake of Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway's hawkish remarks.
In fact, Conway said that New Zealand inflation may not slow as quickly as the central bank forecasts, raising the prospect of further policy tightening following the first rate increase in three years on July 8. In fact, markets are pricing in nearly 50 basis points (bps) of additional rate hikes over the next year, which, in turn, provides a goodish lift to the New Zealand Dollar (NZD). Meanwhile, the NZD/USD pair seems unaffected by a broadly firmer US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, hits a one-and-a-half-week top in the wake of escalating US-Iran tensions and US Federal Reserve (Fed) rate-hike bets. The US military launched a third consecutive night of strikes against Iran after President Donald Trump on Monday notified Congress that he was resuming hostilities and reimposed a blockade of Iranian ports. In response, Iran claimed that it attacked US military sites in Kuwait.
Moreover, Iranian missiles struck two UAE tankers in Omani territorial waters in the Strait of Hormuz after announcing the closure of the strategic waterway over the weekend. This, in turn, triggers a sharp rise in Crude Oil prices and reignites inflation fears, bolstering expectations that the US central bank will raise borrowing costs by the end of this year. The outlook favors the USD bulls, though it fails to hinder the NZD/USD pair's strong intraday move up.
Traders now look forward to the release of the latest US consumer inflation figures, due later during the North American session. Apart from this, Fed Chair Kevin Warsh's congressional testimony will be scrutinized for more cues about the future policy path, which, in turn, will play a key role in influencing the USD price dynamics. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the NZD/USD pair remains to the upside.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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