NZD/USD rebounds to upper 0.6400s as risk appetite improves, 21DMA offers support

• NZD/USD has recovered from earlier session lows in the 0.6420 area as risk appetite improved since the US open.
• The pair, now trading closer to 0.6475, is likely to trading between in 21 & 50DMAs pre-release of US CPI.

The kiwi failed to emulate the upside seen in its Aussie counterpart in wake of a larger than expected rate hike from the RBA and was instead one of the worse G10 performers of the day. NZD/USD dropped as low as the 0.6420s, weighed amid a risk-off feel to broader macro trading conditions after major US retailer Target released downbeat guidance, sparking fresh fears about slowing US growth.

The downbeat tone to trade prior to the US open initially weighed most heavily on the G10 currencies with the thinnest liquidity conditions (like the kiwi). However, an improvement in sentiment that has seen US equities nearly recover back to flat has helped bring NZD/USD back from lows. The pair is now trading close to 0.6475, where it still admittedly trades lower by about 0.2% on the day.

Dip-buying ahead of the 21-Day Moving Average at 0.6420 also seemed to support the kiwi on Tuesday. Subject to risk appetite conditions, the pair is likely to now remain trapped between its 21DMA and 50DMA (around 0.6580) in the run-up to Friday’s US Consumer Price Inflation data release.

Analysts suspect that if the data shows US price pressures to have eased more than expected in May, the dollar will likely weaken significantly and risk assets (like the kiwi) will rally. In such a scenario, NZD/USD might be able to test the upper 0.6500s/muster a breakout into the 0.6600s (and to its highest levels since April).