NZD/USD rallies into upper 0.6800s amid post-soft US CPI dollar profit-taking, focus now shifting to RBNZ

• NZD/USD has rallied into the upper 0.6800s in wake of post-softer than expected US CPI US dollar profit-taking.
• Short-term bulls are eyeing a test of recent lows and the 21 and 200DMA at 0.6900.
• Focus has now turned to Wednesday’s RBNZ meeting.

After finding strong support above the 0.6800 level and its 50-Day Moving Average just below it earlier in the session, NZD/USD has now extended gains to the 0.6860s, where it now trades up about 0.6% on the day. The latest US Consumer Price Inflation report, which saw Core measures come in a little softer than expected, triggered a bout of profit-taking in USD long positions, hence the most recent bounce in NZD.

Short-term NZD/USD bulls will now be eyeing a retest of resistance in the 0.6900 area, which coincides with the 1 April low and the 21 and 200DMAs. Before that though, the pair is going to need to break back to the north of the 29 March lows at 0.6875, which for now, it has not been able to do. That shouldn’t come as too much of a surprise to traders.

NZD/USD is likely to trade in subdued fashion for the rest of Tuesday’s session ahead of the release of the RBNZ’s latest monetary policy decision during Wednesday’s Asia Pacific session. Market participants are debating whether the bank will lift interest rates by 25 or 50 bps and how aggressive subsequent rate guidance will be.

Any dovish surprise (i.e. a 25 bps move) would threaten the RBNZ’s status as the most hawkish G10 central bank and would weigh heavily on NZD/USD. A drop back to the 0.6800 area and the 50DMA, and potentially below it, would be on the cards. For now though, the pair seems highly likely to stick within a 0.6800-0.6900ish range.