NZD/USD rallies to mid-0.6300s despite hot US CPI, but outlook for sustained rebound murky

• NZD/USD has rebounded to the 0.6350 area on Wednesday as risk appetite steadies, despite hot US CPI data.
• But the outlook for a sustained rebound doesn’t look good, with NZD/USD still trading near its lowest levels since 2020.
• Continued concerns about global growth and central bank tightening could yet send the pair lower.

A broad stabilisation in the market’s appetite for risk (US equities are mostly higher) on Wednesday despite the release of hotter-than-expected US Consumer Price Inflation figures coupled with a broad commodity price rebound has seen shorts on the risk/commodity-sensitive New Zealand dollar pared. NZD/USD was last trading higher by nearly 1.0% on the day in the mid-0.6300s after hitting its lowest level since June 2020 at 0.6276 on Tuesday.

But the pair has struggled to push into the upper 0.6300s amid the presence of key chart resistance levels around the 0.6400 mark. NZD/USD failure to break convincingly back to the north of the 0.6350 mark also reflects broader concerns that Wednesday’s improvement in risk appetite will not last.

Indeed, it’s been a rough couple of weeks for the likes of the global stock market and risk-sensitive currencies like the kiwi. NZD/USD has been on a bearish trajectory for more or less the entirety of the last six weeks, with market participants worried about Fed (and global central bank) tightening to address sky-high inflation even though global growth appears to be quickly slowing. The pair is currently down nearly 10% versus its early April highs.

For the rest of the week, commentary from Fed policymakers and the University of Michigan’s preliminary May Consumer Sentiment survey will be the main focus stateside. NZD/USD traders should also keep an eye on the upcoming release of New Zealand Q1 inflation expectations data, which could impact RBNZ tightening expectations. However, it should be noted that the fact that the RBNZ is well ahead of the Fed regarding the lifting of interest rates, and looks set to remain so, has not prevented NZD/USD’s decline in recent weeks.