NZD/USD SLIDES TO 0.6250 ON CHINA-TAIWAN TENSION, FOCUS ON KEY INFLATION DATA, FED MINUTES (I)

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  • NZD/USD prints mild losses after a volatile week.
  • China’s heavy military drills near Taiwan Strait propel geopolitical fears despite Easter Monday holiday.
  • RBNZ’s hawkish surprise fails to push back bears amid fresh boost to Fed rate hike concerns from the US NFP.
  • US/China inflation numbers, FOMC minutes will be crucial to watch for clear directions.

NZD/USD begins the trading week on a back foot as it drops to 0.6250 amid geopolitical fears emanating from China and Taiwan. Adding strength to the Kiwi pair’s downside move could be the recently firmer hawkish Fed bets. However, the Reserve Bank of New Zealand’s (RBNZ) 0.50% rate hike and cautious mood ahead of this week’s key data/events, as well as the Easter Monday holiday, put a floor under the prices.

Taiwan President Tsai Ing-wen’s US visit triggered the US-China woes as Beijing conducts strong military drills near Taiwan Strait. “China's military simulated precision strikes against Taiwan in a second day of drills around the island on Sunday, with the island's defense ministry reporting multiple air force sorties and that it was monitoring China's missile forces,” reported Reuters.

On the other hand, Friday’s upbeat US employment data renewed hawkish Fed bets. However, the market participants also expect a rate cut in late 2023 and hence pour cold water on the face of the NZD/USD bears. That said, the CME’s FedWatch Tool suggests 69% odds of the 0.25% rate hike in May, versus 55% before the US jobs report.


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