NZD/USD Drops Below 0.6620 Due to Fed's Progressive Rate Hike Expectations

The NZD/USD pair has fallen below last week's low of 0.6626, extending Friday's losses. The asset has fallen sharply in the last two trading sessions after repeatedly failing to sustain above the round level resistance of 0.6780. The risk-off market environment has lowered demand for risk-perceived assets, and given the price action, a downward trend is projected to take the asset to approach yearly lows near 0.6529.

Since Thursday's announcement of the New Zealand Consumer Price Index (CPI), the kiwi has been underperforming against the greenback. The annual New Zealand CPI came in at 6.9 percent, missing expectations of 7.1 percent and matching the prior print of 5.9 percent. Although a lower-than-expected inflation reading weighed on the kiwi, it did not diminish the likelihood of further rate hikes by the Reserve Bank of New Zealand (RBNZ). RBNZ Governor Adrian Orr stated in his most recent monetary policy statement that inflation is soaring and that raising interest rates is the only way to mitigate inflation risks. As a result, the RBNZ's policymakers will maintain their hawkish advice and push inflation below the target rate of 2% sooner.

Meanwhile, increased probabilities of a Federal Reserve (Fed) rate hike are pushing the US dollar index (DXY) higher. The DXY is comfortably over 101.00 and is projected to extend gains this week as investors anticipate higher Durable Goods Orders. Monthly Durable Goods Orders are expected to come in at 1%, compared to the prior estimate of -2.1 percent. Additionally, investors will retreat behind the greenback in the run-up to the Federal Reserve's monetary policy statement in May.

NZD/USD