NZD/USD hovers around two-week top below 0.6700 with eyes on US inflation

• NZD/USD grinds higher around fortnight top, pauses three-day uptrend.
• Upbeat market sentiment, softer USD helped buyers of late.
• White House triggered fears of higher US inflation, NZ PM Ardern tried to ignore protesters at Parliament.
• US CPI for January becomes the key data to watch for clear market direction.

NZD/USD struggles to extend the previous three-day uptrend, easing to 0.6680 during the early Thursday morning in Asia.

The market’s cautious sentiment ahead of the US Consumer Price Index (CPI) joins the mixed statements from the White House (WH) and New Zealand politics to test the bulls of late. Before that, the broad weakness of the US dollar and risk-on mood helped the Kiwi pair to remain firmer, by tracking the gains of the AUD/USD and equities.

WH conveyed expectations of a higher YoY inflation figure while also saying, “Its irrelevant month on month number will continue trending lower the rest of the year.” Following that, WH Economic Adviser Brian Deese said that he sees reason to think that factors boosting inflation will moderate over time.

The mixed comments on inflation add to the market’s anxiety ahead of crucial US inflation data and challenge the buyers of riskier assets like commodities and Antipodeans.

At home, New Zealand (NZ) Prime Minister Jacinda Ardern tried to tame the doubts over the government’s popularity as many protesters staged dislike for a push towards masks and vaccines at the Parliament. “Protesters at Parliament do not represent most of the country's views and evicting them from Parliament is a decision for police,” said NZ PM Ardern per NZ Herald.

It’s worth noting that the doubts over the US-China trade ties, as signaled by Washington’s communication of Beijing’s inability to match the Phase 1 trade deal target, joined the Russia-Ukraine tussles to test the NZD/USD bulls as well.

Previously, markets cheered upbeat performance of equities and commodities, as well as the US dollar weakness, to print gains amid mixed signals and a light calendar. It should be observed that Cleveland Fed President Loretta Mester supported the March rate hike while Atlanta Federal Reserve President Raphael Bostic told CNBC on Wednesday he is hopeful that they will start to see a decline in inflation. Fed’s Bostic also said, "Leaning toward the need for a fourth interest rate increase in 2022."

Looking forward, NZD/USD may consolidate recent gains during the pre-CPI caution. However, the bear’s performance will depend upon the US inflation data.

Read: US Consumer Price Index January Preview: Is this inflation different?

Technical analysis

Although a two-week-old ascending trend line joins firmer MACD to keep NZD/USD buyers hopeful, 21-DMA and December 2021 low, respectively around 0.6690 and 0.6700, challenge the quote’s immediate upside. Alternatively, sellers may take entries on witnessing a clear downside break of the stated support line, near 0.6640 at the latest.