NZD / USD weakens below 0.6800, focus remains on US CPI

• A combination of factors does not help the NZD / USD to capitalize on its modest initial rally.
• Cautious market sentiment limits the perceived riskier NZD amid moderate USD demand.
• Optimistic expectations from the Fed act as a tailwind for the USD ahead of the key US CPI report.

The pair NZD / USD has returned its modest intraday gains and has fallen to a new daily low, around the region of 0.6775 in the last hour.

The pair gained some positive traction during Friday’s Asian session, although it struggled to capitalize on the move and turned into negative territory for the second day in a row. A softer risk tone, as evidenced by negative sentiment in equity markets, acted as a headwind for the higher perceived risk NZD.

Apart of this, a modest rally in US Treasury yields supported the safe-haven US dollar in the context of the Fed’s upbeat expectations. This was seen as another factor prompting some intraday selling around the NZD / USD pair, although the drop is likely to remain muffled ahead of the release of consumer inflation data. U.S.

The markets seem convinced the Fed would adopt a more aggressive monetary policy response to contain stubbornly high inflation. Indeed, money markets indicate the possibility of a first rate hike in May 2022. Therefore, the US CPI report would influence the Fed’s decision to reduce its stimulus at a faster pace and set the stage for a rate hike.

Before the key event, investors might prefer to wait on the sidelines and refrain from opening aggressive directional positions. This, in turn, should help cap any deeper losses for the NZD / USD pair, at least for the moment, and warrants some caution before positioning for any further bearish moves.

NZD / USD technical levels