NZD/USD dropped sharply on Friday as the US Dollar resurged as a hawkish narrative surrounding the Federal Reserve resurfaced. NZD/USD dropped to a low of 0.6195 from a high of 0.6314 and is stabilizing around 0.62 the figure currently. 

On Friday, Federal Reserve´s Governor Christopher Waller said that despite a year of aggressive rate increases, US central bankers "haven't made much progress" in returning inflation to their 2% target and need to move rates higher still. However, other Fed officials crossed the wires with Atlanta Fed President Raphael Bostic saying one more quarter-percentage-point interest rate hike can allow the Fed to end its tightening cycle while Chicago Fed President Austan Goolsbee said that a US recession is certainly feasible. Consequently, Fed funds futures traders are pricing in an 81% probability that the Fed will hike by an additional 25 basis points at its May 2-3 meeting.

Analysts at ANZ Bank explained that given consumer resilience, markets are now putting an 85% probability of a 25bp rate rise in May and expectations for June firmed as well. ´´Our baseline view is for two more 25bp rate hikes and we continue to expect that if economic data does not start to weaken soon, the market will need to reprice for no rate cuts in the second half of this year. A solid advance Q1 GDP release now seems likely,´´ the analysts said. 

Meanwhile, on the domestic front, the analysts said that ´´the hurdle for an upward surprise in non-tradable inflation on Thursday is high, but MPR-signalled upward revisions to the RBNZ’s near-term inflation outlook imply that any wins on the starting point may be offset in the RBNZ’s May MPS projections and OCR decision. ´´