- The New Zealand dollar remains on the defensive and loses 1.69%.
- Inflation in the US, and the Federal Reserve meeting, weighed on market sentiment and boosted the USD.
- On Tuesday, the US Producer Price Index for May could attract investors’ attention as the Fed’s monetary policy meeting looms.
The NZD/USD fell close to 90 pips in a risk-off session, courtesy of the US consumer price index for May, which hit 8.6%, sparking fears that the US Federal Reserve might be in for a break. tightened more than it has, which would drag the US into a recession. At 0.6251, NZD/USD is quoting a fresh four-week low as sellers start targeting year lows at 0.6216.
Bad mood dominates the financial markets
The gloomy mood in the markets has investors looking for a flight to safe-haven assets. Wall Street is having a bloodbath, losing between 2.66% and 4.84%. On Tuesday, the US Federal Reserve will kick off its two-day monetary policy meeting and is widely expected to raise interest rates by at least 0.50%. This, coupled with the aforementioned and the resurgence of a coronavirus outbreak in China, has investors on edge.
The WSJ ran a story that read: “A spate of worrying inflation reports in recent days is likely to prompt Federal Reserve officials to consider surprising markets by raising interest rates by 0.75 percentage point higher than expected at their meeting this week.”
market reaction
NZD/USD dropped from 0.6280 to 0.6240 in a matter of 15 minutes. Meanwhile, the US dollar index reacted higher and jumped from 104.9325 to 105.285, a fresh two-decade high, up 1.03%. Yields on 10-year US Treasury bonds jumped to new 11-year highs and are nearing February 2011 highs of around 3,737%.
Later in the Asian session, the New Zealand calendar will reveal food inflation for May. The Producer Price Index (PPI) for May will be released on the US economic docket, which is expected to rise to 10.9% year-on-year, down from 11% in April. However, due to the jump in the CPI, it could break expectations, opening the door for a 75 basis point rate hike by the Fed.
Technical levels
Source: Fx Street
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