NZD/USD gains ground and threatens 20-day SMA, upside limited

• The NZD/USD pair advances 0.30% and stands at 0.5915.
• Inflation accelerated in August, driven by rising gasoline prices.
• US yields initially rose to two-week highs and then consolidated.
• Fed tightening expectations remain high.

In the Wednesday session, the NZD/USD pair rose towards 0.5915, close to the 20-day SMA of 0.5922. That said, upside potential during the session is limited by the fact that the US dollar remains firm following the release of US inflation data.

According to the US Bureau of Labor Statistics (BLS), August saw a rebound in inflation, with the Consumer Price Index (CPI) increasing 3.7% year-over-year, up from 3.2% in July. This figure exceeded market expectations of 3.6%, while the monthly figure coincided with forecasts of 0.6%. The underlying annual figure fell to 4.3% from 4.7% in July, matching forecasts.

The initial reaction was a spike in the US 2-year Treasury yield to 5.08%, its highest level in more than two weeks, and then consolidated near 5%. The 5- and 10-year yields saw similar moves and are consolidating at 4.41% and 4.28%. Accordingly, yields remain high as, according to CME’s FedWatch tool, markets continue to price the odds of a final hike in November or December by the Federal Reserve (Fed) high.

Attention now turns to Thursday’s US August Producer Price Index (PPI) numbers, which will guide investors in shaping their expectations for the upcoming Fed meetings.

NZD/USD Levels to watch

NZD/USD daily chart analysis points to short-term bearish sentiment. The Relative Strength Index (RSI) is below its midline while the Moving Average Divergence (MACD) is printing flat green bars, which means that despite gaining some traction, the bullish momentum remains weak . Furthermore, the pair is below the 20,100 and 200-day SMA, indicating that the bears are still in control in the bigger picture.

Supports: 0.5900, 0.5890, 0.5850.
Resistances: 0.5922 (20-day SMA), 0.5930, 0.5960.

NZD/USD Daily Chart