NZD/USD steady within a narrow range, awaiting NZ Business PMI/US Retail sales

• NZD/USD continues extending its fall during the week, set to finish with losses for the third straight week.
• A risk-off impulse weighed on the NZD/USD, courtesy of the red hot US PPI report.
• Fed officials push back against 100 bps; investors scale back 100-bps rate hike.

The New Zealand dollar snapped two days of consecutive gains on Thursday and is trading with minimal losses of 0.12% amidst a dampened market mood, spurred by another high US inflation report, in this case, the Producer Price Index for June, which exceeded expectations, while the greenback rises.

The NZD/USD is exchanging hands at 0.6125, almost pairing its earlier losses, after dipping to a fresh YTD low around 0.6060, though buyers stepped in, and the major rose shy of the daily high around 0.6134.

The main drivers are the US Dollar and a dismal mood

Risk aversion is still dominating the financial markets. US equities finished Thursday’s session with losses, reflecting worries about a stickier than expected inflation, recession jitters, and expectations of a larger-than-expected US Federal Reserve hike.

During the New York session, which had just finished, the US Department of Labour reported the June Producer Price Index, also known as the PPI, which showed that prices rose by 11.3% YoY, higher than the 10.7% estimated. Although portraying persistent cost pressures, producers got a respite as commodity prices recoil on concerns about global demand. That, alongside consumer inflation overshooting 9% annually, further cemented the case for a Fed’s 75 bps rate hike.

Fed speaking continued throughout the day as officials will enter a blackout period ahead of the July meeting. Fed’s Christopher Waller and James Bullard downplayed the chance of a 100 bps hike, with both backing up a 75 rate rise. Later in the day, the new Boston Fed President, Susan Collins, expressed that inflation is “too high” and said she would address it as her priority.

Investors’ reaction to that was felt in Eurodollars money market futures, with the July contract pricing in 268 bps of tightening, meaning that it’s fully priced in a 75 bps, while odds of a 100 bps are down at 44%, a tailwind for the NZD/USD, which staged a late recovery, erasing some earlier losses.

In the meantime, the NZD/USD capped its losses due to the recent RBNZ rate hike and market participants scaling back Fed interest rate rises.

What to watch

The New Zealand economic calendar will feature Business PMI for June on Friday. The economic docket is packed on the US front, led by Retail Sales, the University of Michigan (UoM) Consumer Sentiment, and further Fed speaking, ahead of entering the blackout period.

NZD/USD Key Technical Levels