• NZD/USD stabilizes around the lowest levels since November 2022, retreats of late.
• US Dollar grinds higher amid uncertainty surrounding debt ceiling agreement’s passage through US Congress.
• Upbeat US data inspires hawkish Fed bets amid RBNZ’s dovish hike.
• Monday’s holiday may restrict market moves, US default updates, NFP will be the key for immediate directions.

NZD/USD licks its wounds around the lowest levels in 10 weeks, steady near mid-0.6000s by the press time, as market players struggle to cheer the initial agreement on the US debt ceiling extension amid Monday’s holidays in major bourses. Additionally challenging the Kiwi pair buyers are the fears that the US President Joe Biden and House Speaker Kevin McCarthy’s deal may fail to pass through the Congress. Even so, upbeat US data and hawkish Fed bets contrasts with the Reserve Bank of New Zealand’s (RBNZ) dovish hike to keep the Kiwi bears hopeful.

During the weekend, US President Biden and top congressional Republican McCarthy reached a tentative deal to raise the Federal government's $31.4 trillion debt ceiling through January 2025. The deal, however, lacks support from some of the extreme leftists and rightists due to the compromise each party had to do to reach the agreement. That said, the debt ceiling deal needs to pass through the House on Wednesday and the Senate by June 05 to avoid the looming ‘catastrophic’ default. Recently, US President Biden ‘strongly’ urged both chambers to pass the agreement.

Elsewhere, US PMIs, the second estimate of the first quarter (Q1) 2023 Gross Domestic Product (GDP), Durable Goods Orders and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge, marked upbeat details in their latest readings. On Friday, US Durable Goods Orders for April came in better-than-forecast to 1.1% from 3.3% prior, versus -1.0% expected. Further, Nondefense Capital Goods Orders ex Aircraft, also known as the Core Durable Goods Orders, marked upbeat growth of 1.4% compared to -0.2% anticipated and -0.6% previous readings. Additionally, the Core PCE Price Index for the said month rose past market forecasts and previous readings of 0.3% MoM and 4.6% YoY to 0.4% and 4.7% in that order.

It should be noted that International Monetary Fund Managing (IMF) Director Kristalina Georgieva stated that the US interest rates will need to be higher for longer. Alternatively, Federal Reserve Bank of Cleveland President Loretta Mester said that the Personal Consumption Expenditures (PCE) Price Index released on Friday underscored the slow progress on inflation. During the weekend, Federal Reserve Bank of Chicago President Austan Goolsbee welcomed the US debt ceiling news while also saying, amid the CBS Show “Face the Nation”, “I try to make it a point not to prejudge and make decisions when you are still weeks out from the meeting."

With this, the global markets appear optimistic about the Federal Reserve’s (Fed) June rate hike and favor the US Dollar’s demand despite the carry trade with the New Zealand counterpart.

That said, S&P500 Futures print mild gains while cheering the US debt ceiling deal whereas the holidays in major bourses restrict the bond market moves of late.

Moving on, Monday’s off in major trading frontiers may allow the Kiwi pair to consolidate the recent losses but the overall view remains bearish amid looming US default. Even if the US policymakers avoid the ‘catastrophic’ default, the debt deal will allow the Fed to remain hawkish. That said, this week’s US jobs report for May will be the key to watch on calendar for clear directions.