NZD/USD trades higher awaiting the US CPI.

• NZD/USD is slightly off the highs, but is helped by the weakness of the US dollar.
• US CPI is the next key data, with an eye on the Fed next week.

The NZD/USD pair has started the week higher, up 1.65% at time of writing, after rising from a low of 0.6134 and reaching a high of 0.6264 so far this day. Risk currencies that have high beta relative to stocks, such as those from the antipodes, have rebounded strongly from their four-month lows, as the failure of Silicon Valley Bank has been responded to with determination by US regulators and the Federal Reserve to safeguard depositors.

Consequently, the dollar has suffered from the decline in bond yields as a result of the SVB bankruptcy. The yield on two-year Treasury bonds reached 3.997% in the American session and fell from the highs of 4.534%, the most significant drop in a single day since the 2008 financial crisis.

Also, Fed funds futures have rallied as traders expect the Fed’s terminal rate to be lower. Markets are pricing as low as 4.14% for December, which was originally set above 5% on Friday. Additionally, futures show a 21% chance that the Federal Reserve’s Open Market Committee will not raise rates on March 22.

Contagion fears are high and bond markets expect the Fed to raise rates once more and start cutting rates in September, presumably as confidence and spending hit a wall.”

It is possible, but of course the starting point of inflation is problematic. The thing is, there are a lot of buts, and it seems likely that there will be more volatility in the Consumer Price Index data tonight.” New Zealand considerations have been relegated to the background, and this is the USD show. Positioning, and the need to be agile, are likely to dominate the economy for now.”

It should be noted that the Reserve Bank of New Zealand raised interest rates by 50 basis points in a widely expected move at its February meeting. The RBNZ has raised the OCR a total of 450 basis points in ten consecutive meetings and the rate now stands at 4.75%, a 41-year record.