NZD/USD surrenders post-CPI modest gains, back below 0.6100 mark

• NZD/USD ticks higher following the release of domestic inflation figures, albeit lacks follow-through.
• Hawkish Fed expectations continue to act as a tailwind for the USD and cap the upside for the pair.
• Traders also seem reluctant amid global economic woes and ahead of important US macro releases.

The NZD/USD pair struggles to capitalize on its modest gains registered during the Asian session on Wednesday and remains well within the striking distance of a near two-month low, around the 0.6065-0.6060 area touched the previous day. Spot prices currently trade just below the 0.6100 mark, nearly unchanged for the day, though a combination of factors could help limit deeper losses.

Statistics New Zealand reported that domestic consumer inflation decelerated from the 5.6% YoY rate to 4.7% in the final three months of 2023, though remained well above the Reserve Bank of New Zealand's (RBNZ) 1% to 3% target. This, in turn, limits the likelihood of a near-term interest rate cut by the central bank, which, along with subdued US Dollar (USD) price action, could lend some support to the NZD/USD pair.

The downside for the USD, however, seems limited amid expectations that the Federal Reserve (Fed) will not rush to cut rates in the wake of a still-resilient US economy. This, along with the risk of a further escalation of geopolitical tensions in the Middle East and the uncertain global economic outlook, might continue to act as a tailwind for the safe-haven Greenback and cap any meaningful gains for the risk-sensitive Kiwi.

Traders might also refrain from placing aggressive directional bets and prefer to wait for important US macro releases – the Advance Q4 GDP print and the Core PCE Price Index – scheduled during the latter part of the week. In the meantime, the flash US PMIs, along with the US bond yields and the broader risk sentiment, provide some impetus to the NZD/USD pair later during the early North American session on Wednesday.

Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a near-term bottom and positioning for any further appreciating move. On the flip side, a break below the 0.6065-0.6060 area will be seen as a fresh trigger for bearish trades and set the stage for an extension of a near one-month-old descending trend.

Technical levels to watch