NZD/USD starts week in subdued fashion sub-0.6850 ahead of key US inflation data/RBNZ rate decision

• NZD/USD has seen a subdued start to the week and remained capped below 0.6850.
• Traders await pivotal upcoming risk events, including US inflation (CPI and PPI) and the RBNZ rate decision.
• Any dovish RBNZ surprise would send the pair towards March lows in the 0.6725 area.

NZD/USD is trading a tad weaker on the first trading day of the week in a mixed start to the week for FX market trade, where the action has been dictated by a combination of moves in rate differentials and risk-off flows. Both of these factors have worked against the kiwi, hence its modest 0.1% drop versus the US dollar, with global equities on the backfoot amid geopolitical/China lockdown concerns and US yields rallying as markets up Fed tightening bets.

Currently, NZD/USD is trading in the 0.6830s, having been able to rally above the 0.6850 mark earlier in the session, although buying ahead of the round 0.6800 figure and 50-Day Moving Average just below it has been supportive. Technicians note that the pair has on Monday been testing a key uptrend that has been in play since the start of February and hasn’t yet mustered a convincing downside break.

The lack of conviction in Monday trade shouldn’t come as too much of a surprise ahead of key risk events this week. The highlights of the week are 1) US Consumer and Producer Price Inflation (CPI and PPI) data on Tuesday and Wednesday and 2) the RBNZ rate decision on Wednesday. Starting with the former; headline CPI is seen hitting a 40 year high at 8.4% and exerting further pressure on the Fed to get on with it regarding monetary tightening. This could spur further bond yield upside.

On the latter, analysts are split on whether or not the RBNZ will deliver a 25 or 50 bps rate hike, though money market pricing heavily favours the latter. That suggests the bigger risk for the kiwi is a large drop if the RBNZ fails to live up to hawkish expectations. In this case, a drop below 0.6800 would be highly likely, which would open the door to a run towards support in the form of the March lows at 0.6725.