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Firmer Commodities, Weaker Greenback Throw Lifeline To Kiwi

NZD

NZD/USD reversed its initial losses after Asia hours Monday even as concerns about China's growth prospects resurfaced on the back of dismal April activity data. Firmer crude oil prices lent support to commodity-tied FX space, while a poor U.S. Empire M'fing reading dented the greenback.

  • From a technical perspective, the pair found a floor around the 61.8% retracement of its 2020 - 2021 rally ($0.6232) over the recent days. It last trades flat at $0.6310, with bulls looking to further gains above May 11 high of $0.6380 & May 5 high of $0.6568 for confirmation that broader selling pressure is easing. Bears look for a dip through the aforementioned Fibo support, which would bring May 29, 2020 low of $0.6169 into play.
  • Westpac revised their forecast peak for the OCR by 50bp to 3.50%, to be reached by the end of this year. They expect the RBNZ to deliver 50bp rate hikes at each of the May, July and August monetary policy meetings, with further 25bp hikes pencilled in for October and November. While four half-point rate rises in a row "would be virtually unprecedented in the era of inflation targeting, (...) so is much of what central banks are facing today."
  • The OIS strip prices ~45bp worth of tightening for this month's MPC meeting, which is well within the recent range.
  • On the data front, New Zealand's PPI will hit the wires Thursday, with trade balance & credit card spending set to follow the day after.

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