NZD/USD briefly pops above 0.6800 again after US inflation figures not as high as feared

• NZD/USD briefly pushed back above 0.6800 in wake of not as high as feared US inflation figures.
• Analysts said the market had been positioning itself for an upside surprise, hence the unwind of bullish dollar bets.

NZD/USD has been choppy in recent trade, rebounding from close to session lows around 0.6780 to momentarily back above 0.6800 in wake of a bad as feared increase in US Consumer Price Inflation in November. The pair has since dropped back to around the 0.6790 level, where it trades broadly flat on the day after failing to push above Asia Pacific session highs at 0.6806.

The move higher was a result of dollar weakness following the broadly as expected Consumer Price Inflation (CPI) figures, which saw the YoY rate of CPI hit near four-decade highs at 6.8%. Analysts noted that markets had appeared to be positioning themselves for an upside surprise in the run-up to the data, with some citing comments from US President Joe Biden on inflation on Thursday as hinting towards a higher-than-expected inflation reading. To recap, Biden commented on Thursday that some of the recent declines in energy prices would not have fed into the CPI yet - some saw this as him attempting to pre-emptively playdown fears about higher-than-expected inflation. 

Thus, with inflation broadly failing to beat expectations, that was enough to see an unwind of bullish dollar bets. The Fed is still likely to view this data with extreme disappointment, however, and it will strengthen the hand of the more hawkish FOMC members pushing for faster monetary policy normalisation.

Back to the kiwi; again lags its fellow non-USD dollar peers (AUD and CAD) which could be a reflection of a significant slowdown in Manufacturing PMI to 50.6 in November from 54.3 the month prior. But alternative NZ data released on Friday was positive, with spending on electronic cards up 9.6% in November, suggesting consumption will drive a strong economic rebound in Q4. Ahead, NZD/USD traders should keep an eye on an eye on the release of the preliminary US University of Michigan Consumer Sentiment survey which is out at 1500GMT.

Otherwise, traders should watch the latest headlines on Omicron for further information on 1) transmissibility (seems very high), 2) vaccine effectiveness (still not clear, but they still seem somewhat effective) and 3) severity (illness associated with Omicron infection seems very mild versus delta).