- NZD/USD rallied to the 0.6350 area on Wednesday as risk appetite stabilizes, despite higher-than-expected US CPI data.
- But the prospect of a sustained rally does not look good as NZD/USD is still trading near its lowest levels since 2020.
Ongoing concerns about global growth and central bank tightening could still send the pair lower.
A broad stabilization in market risk appetite (US equities are mostly higher) on Wednesday, despite the release of higher US consumer price inflation figures than than expected, coupled with a broad rally in commodity prices, has seen the risk/commodity sensitive New Zealand dollar shorted. The NZD/USD was last seen up nearly 1.0% on the day at 0.6350 after hitting its lowest level since June 2020 at 0.6276 on Tuesday.
But the pair has struggled to break above the 0.6350 level amid the presence of key resistance levels on the chart around 0.6400. NZD/USD’s failure to convincingly break above 0.6350 also reflects broader concerns that Wednesday’s improvement in risk appetite will not last.
Indeed, it has been a rough couple of weeks for the global stock market and risk sensitive currencies like the Kiwi. NZD/USD has been on a bearish trajectory for more or less the entirety of the last six weeks, with market participants concerned about the Fed (and global central bank) tightening to tackle sky-high inflation despite the fact that global growth appears to be slowing rapidly. The pair is currently almost 10% below its early April highs.
For the rest of the week, comments from Fed policymakers and the University of Michigan’s preliminary May Consumer Sentiment survey will be the main focus in the US. NZD/USD traders should also keep an eye on the upcoming release of NZ Q1 inflation expectations data, which could affect RBNZ tightening expectations. However, it should be noted that the fact that the RBNZ is far ahead of the Fed in raising interest rates, and looks set to continue to be, has not prevented the NZD/USD from falling in recent weeks.
Technical levels
Source: Fx Street
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