NZD/USD on the back-foot as greenback hardens-up

• NZD/USD bears back in the game as RBNZ dovishness trump's the Fed.
• FOMC minutes cast a less dovish tone than expected, underpinning US dollar's correction.

NZD/USD has been thrown onto the backfoot by a stringer US dollar, reaching as low as 0.6554 from 0.6651 US session highs. 

At the time of writing, the bird is consolidating at 0.6560 as Asia digests the recent spike in the greenback following the Federal Reserve's minutes which had a little bit of something for everyone. 

There was nothing particularly new within the minutes, but a slightly less dovish tone than expected and a short squeeze in the dollar insured that the bulls have now something to think twice about.

Analysts at ANZ Bank explained that the FOMC minutes released this morning were dovish on balance, hinting that the Fed’s economic projections could be downgraded come September.

However, a few qualms about yield-curve control was enough to underpin the US dollar's correction.

The use of additional forward guidance was discussed: “a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point”.  And so too was yield-curve control, but there appears to be little enthusiasm for it.

Like everywhere else in the world, policy officials remain at the mercy of virus developments.

RBNZ leaves bird vulnerable

Meanwhile, the Reserve Bank of New Zealand is tipped to be at the ready to act accordingly. 

The RBNZ’s “unconstrained OCR forecast,” which gives a sense of the overall degree of monetary stimulus that is required, has not changed relative to the May MPS, and is still sitting at -2% for two years.

Like us, the RBNZ has acknowledged the recent surprising resilience of the economy, but is still concerned about the longer term outlook due to health uncertainty, the closed borders, the weak global economy, and the higher exchange rate,

analysts at Westpac explained.

Assistant Governor Hawkesby also reiterated the MPC view that if further easing is needed, a negative cash rate and funding for lending program would be the next step. 

NZD/USD levels