NZD / USD pulls back towards resistance at 0.7250 zone

• NZD / USD has risen from the US session lows, but has not retested the session highs at 0.7250.
• The NZD’s underperformance is surprising given strong inflation and an aggressive move by the RBNZ.

The NZD / USD it performed well during the Asia Pacific trade, rebounding from around the 0.7220 area to modestly above 0.7250. However, by the time US participants hit the market, the pair had started to decline and by the start of US trading hours, the pair had practically given away all of its gains for the day.

The renewed weakness of the US dollar, as the dollar index (DXY) falls below 90.50 and several other G10 / USD pairs break key levels since then, have given a boost to the NZD / USD; the pair is returning to the upside towards the highs touched earlier in the session and is currently trading around 0.7240. Although the kiwi is about 0.2% higher on the day against the US dollar, it has performed rather tepidly on the day against most of its other G10 counterparts and is near the bottom of the performance chart for the G10. G10.

On the other hand, RBNZ inflation expectations for the first quarter of 2021 stood at 1.89% QoQ, a sharp increase from 1.59% in Q4 and back to pre-pandemic levels. Although the speed of the jump could be somewhat concerning for the RBNZ, inflation expectations are still below its five-year average and the RBNZ’s target of 2.0% inflation.

Going forward, January e-card retail sales data will be released at 9:45 p.m. GMT Wednesday and could trigger some NZD volatility, but NZD / USD is likely to remain more focused on USD dynamics and appetite for global risk.

Technical Levels