- NZD/USD recovers after New Zealand’s third quarter inflation figures were better than expected.
- Risk appetite weighs on the dollar and further benefits the risk-sensitive kiwi.
- Fed expectations help limit USD decline and appear to cap the pair.
The NZD/USD pair gains strong positive traction for the second day in a row on Tuesday and rises to a fresh 1-1/2 week high during the first North American session. However, it struggles to find acceptance above 0.5700 and is down a few points from daily highs.
The New Zealand dollar receives a strong boost in reaction to rising domestic consumer inflation in the third quarter, raising bets for more rate hikes by the Reserve Bank of New Zealand. On the other hand, the ongoing rally in equity markets weakens the safe haven dollar and offers additional support to the risk sensitive kiwi.
However, the dollar’s decline is cushioned by rising expectations that the Federal Reserve will maintain its aggressive tightening policy to combat persistent inflation. In fact, current market prices indicate a near 100% chance of another 75 basis point rate hike in November, acting as a tailwind for the dollar.
Additionally, US Industrial Production data, which posted 0.4% growth in September vs. -0.1% prior, offers some dollar support. This turns out to be a key factor limiting the NZD/USD’s upside and warrants some caution before positioning for any short-term appreciation moves.
Market participants are now awaiting a series of important macroeconomic data from China, due to be released during the Asian session on Wednesday. These data will influence the risk sentiment of the market in general. Furthermore, the dollar’s price action should give the NZD/USD pair a further boost and help determine the short-term trajectory.
Technical levels to watch
Source: Fx Street
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