NZD/USD remains under pressure below 0.6500, the fall seems limited

• NZD/USD is in some selling in reaction to unimpressive consumer inflation data.
• CPI annual rate misses RBNZ forecasts and weighs on national currency.
• The USD slide offers support for the pair and helps limit losses.

The pair NZD/USD comes under some selling pressure on Wednesday, breaking a three-day winning streak near its highest level since June 2022 hit last week. The pair remains below the psychological level of 0.6500 during the European session, though it lacks continuation amid subdued US dollar price action.

The New Zealand dollar weakens a bit after the release of the country’s consumer inflation data, which showed that the Headline CPI slowed to 1.4% during the fourth quarter from 2.2% previously. Also, the annual inflation rate came in below the Reserve Bank of New Zealand (RBNZ) forecast of 7.5% and remained stable at 7.2%. The data forces investors to lower expectations for the New Zealand cash rate top to 5%, from 5.5%, and prompts some selling around the NZD/USD pair.

Also, concern about a global economic downturn The deeper price is keeping any optimism in the markets at bay and further helping to steer flows away from the risk-sensitive NZD. That being said, the underlying bearish sentiment around the dollar helps limit the fall in the NZD/USD pair. Indeed, the DXY dollar index, which tracks the dollar against a basket of currencies, remains under pressure near nine-month lows amid expectations of less aggressive Fed tightening.

The markets now seem convinced that the US central bank will soften its hawkish stance and have been pricing in a higher probability of a smaller 25 basis point rate hike in February. This could continue to weigh on the dollar and supports the prospects for some buying at lower levels around the NZD/USD pair. Therefore, it would be prudent to wait for strong continuation selling before confirming that the pair has topped out in the near term and positioning for any deeper corrective pullbacks.

No major US economic data will be released on Wednesday. That being said, broader risk sentiment could influence USD price dynamics and provide some momentum to the NZD/USD pair. However, traders will prefer to stay on the sidelines ahead of this week’s US macro releases, such as the Q4 GDP preview and the core PCE price index for Thursday and Friday, respectively.

Technical levels to watch