NZD/USD drops to near 0.6340 as DXY prints fresh 19-year high, focus is on US inflation

• NZD/USD has plunged on heightened risk-off impulse in the market.
• The DXY has printed a fresh 19-year high at 104.11 on consecutive jumbo rate hike expectations.
• This week, the kiwi zone is expected to report Business NZ PMI at 52.8.

The NZD/USD pair is falling like a house of cards in the Asian session. The asset has been dragged lower to a low of 0.6338, till the press time, down 1% from Friday’s close. An elevation in the negative market sentiment has brought an intense sell-off in the risk-perceived assets. Eventually, investors are channelizing their funds into the US dollar index (DXY), which has recorded a fresh 19-week high at 104.11.  

The DXY has displayed a sheer upside as the odds of a consecutive rate hike by the Federal Reserve (Fed) have strengthened. The disclosure of an upbeat Nonfarm Payrolls (NFP) by the US Bureau of Labor Statistics has triggered the chances of one more rate hike by 50 basis points (bps) in June. The US agency reported the additional jobs in the labor force at 428k, much higher than the preliminary estimate of 391k but a little lower than the prior print of 431k. An extremely tight labor market is signaling an extremely hawkish stance from the Fed.

Going forward, the mega event of US inflation will keep investors on the sidelines. The US inflation is likely to print at 8.1% lower than the prior print of 8.5%. A lower inflation print will be a sign of smooth execution of the policy rates by the US administration. This may trim the odds of a jumbo rate hike and will provide a sigh of relief to the market participants.

On the kiwi front, investors are awaiting the release of the Business NZ PMI, which is due on Friday. The PMI is expected to fall to 52.8 against the prior print of 53.8.  A lower than expected NZ PMI print will extend weakness for the kiwi dollar.