• NZD/USD edges higher continuing the gains from Wednesday when the Fed adopted an easing bias in its May policy meeting. 
• A positive tilt to market sentiment leverages gains for NZD/USD on Thursday. 
• Longer-term negative factors and the worsening economic picture in NZ are likely to continue to weigh. 

NZD/USD edges higher, up by eight-hundredths of a percent in the 0.5930s, on Thursday, as an improvement in global market sentiment helps commodity currencies, of which the Kiwi is a prime example. 

Risk appetite is seen rebounding on the back of falling Oil prices which have reached a seven week low in the mid $79s as well as an overall market-positive outcome of the US Federal Reserve’s (Fed) policy meeting on Wednesday. 

Lower Oil prices reduce costs for business and alleviate headline inflation, and the takeaway from the Fed’s May policy meeting was that although US inflation was not falling swiftly enough for the central bank to seriously consider cutting interest rates, neither was it entertaining the notion of raising them either. The Fed also decided to slow the reduction in its holdings of US Treasury bonds, effectively unwinding the pace of quantitative tightening – a dovish move that weakened the US Dollar (USD) in most pairs. 

Despite the recovery over the past 48-hrs NZD/USD is likely to remain under pressure over the longer-term, however, due to the poor performance of the New Zealand economy, which increases the chances the Reserve Bank of New Zealand (RBNZ) will cut interest rates before the US Federal Reserve. Since relatively lower interest rates reduce capital inflows, this is likely to hurt NZD more than USD.