The NZD/USD pair has experienced a sharp decline below 0.6240 in the early European session. The Kiwi asset is expected to remain on a downward trajectory as investors have become increasingly anxious ahead of the opening of the US markets after an extended weekend. The S&P500 futures are showing losses as the US markets are yet to show the impact of US-China tensions, while the 10-year US Treasury yields have trimmed some gains and have fallen to near 3.85%.
The main focus of the market participants will be on the upcoming interest rate decision by the Reserve Bank of New Zealand (RBNZ). This is due to the promise of a cyclone relief package of NZ$300 million ($187.08 million) from New Zealand Prime Minister (PM) Chris Hipkins. At a time when the New Zealand economy is struggling to control inflation, the release of this helicopter money has the potential to further increase inflationary pressures. This is a cause of concern for RBNZ Governor Adrian Orr, as higher rates could have an adverse effect on economic activity. According to the consensus, the RBNZ is likely to announce a hike in the Official Cash Rate (OCR) by 50 basis points (bps) to 4.75%.
The risk-off market sentiment has been further strengthened by the missile launch by North Korea on the weekend near Japan’s EEC region. The US Dollar Index (DXY) is also having difficulty in pushing its auction above 103.70. All these factors have led to a decrease in the NZD/USD pair, as investors are wary of the potential impact of these events on the global economy.
In the current circumstances, it is difficult to predict the direction of the NZD/USD pair. The interest rate decision by the RBNZ on Wednesday will be a crucial factor in determining the future of the pair. If the RBNZ decides to leave the OCR unchanged, the NZD/USD pair could potentially experience a short-term recovery. However, if the RBNZ announces an increase in the OCR, the Kiwi could slide further.
Overall, the NZD/USD pair has experienced a sharp decline in the early European session due to the risk-off market sentiment. The upcoming interest rate decision by the RBNZ on Wednesday will have a major impact on the direction of the pair. Investors are also monitoring the US-China tensions, the missile launch by North Korea, and the US Dollar Index (DXY) for clues on the future of the NZD/USD pair.
