- NZD/USD benefits from revived risk appetite and a softer US Dollar.
- Central banks to stay on rate hiking path despite liquidity crisis.
- Questions remain on future bank support and policy implications.
NZD/USD cheers the optimism in Asian hours led by the soft-footed US Dollar and positive risk appetite. The risk proxy NZD/USD is reflecting a relief rally led by quick intervention in the banking crisis. The pair is trading up around 0.68% at the time of writing. Most of the Asian equity complexes are trading in the green along with steady US Treasury yields.
Friday's price action for NZD/USD is more likely the exploitation of the previous day in the absence of any top-tier data from both the US and New Zealand. The risk sentiment got boosted when the Swiss National Bank (SNB) came to rescue Credit Suisse by providing CHF50 billion as a covered loan facility.
Given the fact that we have seen Credit Suisse's financial situation get cluttered last year, and it's not a while ago that a fundamentally similar situation happened with Deutsche Bank.
On Thursday, we saw a cumulative effort to revive the First Republic Bank in the US from some key market players like JPMorgan, Citibank, Bank of America, and many others by providing a pool of liquidity totaling US$30 billion.
In a nutshell, investors are confident that no matter what, there will be some sort of support from authorities to ease any financial glitch. And we have seen such type of effort during the COVID crisis when all central banks did whatever it took to revive the economy.
But the big question is, the market doesn't know how many chapters are yet to be disclosed on the liquidity front, and if so, what stance will the central banks adopt. Given the fact that on Thursday, the European Central Bank (ECB) did not shift its rate hiking plan despite the Credit Suisse crisis. And some reports suggest that it is highly unlikely the Federal Reserve will take a pivotal change at the March FOMC meeting.
Some earlier comments from US Treasury Secretary Yellen stated that the USD 250K uninsured deposit limit will not be extended to every bank that fails. Therefore, there are lots of questions yet to be answered.
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