• NZD/USD advances despite a lack of catalyst, lifted by the AUD/USD.
• Sentiment remains mixed, tilted positively, as shown by the FX space, with safe-haven peers pressured.
• Fed policymakers are still pushing back against dovish tilt, as money market STIRs odds of a 75 bps hike lie at 90%.
• RBNZ survey of inflation expectations easied, with 2-year inflation at around 3%.

The NZD/USD climbs as the New York session winds down, up 0.72%, as US equities finished mixed, reflecting a fragile mood. Nevertheless, in the FX space, a risk-on impulse underpinned risk-sensitive currencies like the New Zealand dollar, despite increasing odds of further tightening by the Federal Reserve.

The NZD/USD is trading at 0.6285. earlier, the NZD/USD reached a daily low at 0.6230 before rallying sharply and hitting a daily high at 0.6305, around the London fix time.

The sentiment is stills mixed. The greenback ended Monday’s session on the wrong foot, though late trimmed losses, with the US Dollar Index at 106.387, down 0.18%. Contrarily, US bond yields, led by the US 10-year T-bond yield, dropped almost nine bps, at 2.746%.

The financial market narrative hasn’t changed. Strong US jobs report in last Friday, with US Nonfarm Payrolls surprisingly doubling estimation had seen a jump in Fed’s rate hikes expectations. Since money market futures STIRs show a 90% chance of a 75 bps rate hike, further fueled by Fed’s Michelle Bowman, over the weekend. She said, “I supported the FOMC’s decision last week to raise the federal funds rate another 75 basis points,” while adding that the Fed should keep considering significant hikes.

Furthermore, San Francisco’s Fed Mary Daly said that the Fed is nowhere near done with its fight against inflation. Meanwhile, the July New York Fed Consumer survey revealed that inflation expectations dropped to 6.2% YoY from 6.8% for a 1-year horizon.

In the meantime, the Reserve Bank of New Zealand (RBNZ) survey of expectations released on Monday portrays that 2-year inflation expectations tempered to 3.07%. Meanwhile, the 5-year ahead measure slipped to 2.3%, while the 10-year remained stable at 2.1%.

Analysts at Westpac wrote in a note that: “Even so, today’s survey still points to solid inflation pressures in the New Zealand economy and reinforces the case for rate rises. We’re forecasting another 50bp rise at next week’s RBNZ policy meeting. “

What to watch

The New Zealand economic calendar will feature Electronic Card Retail Sales MoM and YoY for July. On the US front, the economic calendar will unveil July’s CPI and PPI data on Wednesday and Thursday, respectively. Further Fed speaking, led by Charles Evans, Neil Kashkari, and Mary Daly, would offer fresh impetus to NZD/USD traders.

NZD/USD Key Technical Levels