NZD/USD bulls make a move to correct from 3-week lows

• NZD/USD bulls move in, correcting from fresh 3-week lows. 
• The markets will now look ahead to the US CPI.

At 0.6394, NZD/USD is higher and correcting on the day so far, moving up from the lows printed overnight when investor demand for the greenback sank commodity-FX, sending the bird to a 3-week low of 0.6379.

It was another volatile night in global FX markets that saw the EUR sink after the ECB meeting, analysts at ANZ Bank noted:

''The ECB meeting was always the focus of this week, and while they gave fairly explicit forward guidance, EUR fell anyway. It’s almost as though market hawks and doves both got their way – the hawks will be pleased that tightening is finally coming, but the doves will be disappointed that it may be too little too late.''

''Either way, EUR didn’t like it, and as it fell, it took the Kiwi with it. Today we get NZ manufacturing data, which is one piece of the GDP puzzle. But amid all the market volatility, chances are it is overlooked as the focus shifts to next week’s US Fed meeting, into which the USD is inexplicably strengthening. Expect more NZD volatility.''

Meanwhile, traders will now look ahead to the US inflation data in the  May Consumer Price Index (CPI). The consensus forecast calls for a year-over-year inflation increase of 8.3%, unchanged from April. 

A stronger CPI ''reading could put downward pressure on risky assets as investors look for the Fed to remain aggressive in its fight against inflation,'' analysts at TD Securities said. 

''Tactically, we see growing signs of an adverse risk backdrop in the coming weeks, as US real rates and equity correlations wane further and the USD peels away from relative US equity performance.'' Given the kiwi's high beta status, this could be a headwind for the bird. 

The Fed is scheduled to announce its next policy statement on Wednesday. A rate hike of at least 50 basis points from the central bank is already being priced in, according to CME's FedWatch Tool.