NZD/USD sits tight ahead of critical US CPI

• NZD/USD sits tight in a range ahead of today's key US CPI data. 
• 0.6350 is key to the upside while the bears need to get below 0.6190. 

NZD/USD is flat on the day, trapped between a familiar support and resistance range on the daily chart as markets await in anticipation of the next major catalyst being the US inflation data. Ahead of the forex roll-over, NZD/USD is trading at 0.6280 and has stuck to a 0.6270 and 0.6302 range so far.  

''The Kiwi starts the day a tad softer amid a lukewarm rebound in the USD DXY, with slightly higher US bond yields denting risk appetite across many bellwether markets,'' analysts at ANZ bank said in the early Asian open note on Wednesday. 

US CPI data will be key

''US unit labour cost data doesn’t usually rate much of a mention, but such was the upside surprise (up 2.6% q/q to be up 9.5% YoY) that it put a bit more inflation fear into US short-end bonds, with the 2-year bond yield back above Friday’s post-job data levels. But the next 24 hours will be all about US Consumer Price Index.''

''It’ll be bad in level terms, we know that, so it’s a case of how bad, and whether there are signs of persistence (elevated monthly core measures) or signs of moderation (excluding fuel, which we know softened). It all speaks to a period of potentially higher volatility after what has been a period of relative calm.''

prices likely rose by a level that will prompt further interest rate hikes from the Federal Reserve. Combined with last week's NFP report, the Fed is expected to hike interest rates by another 75 basis points at the next Fed meeting in September.

''While a slowing headline reading could lead some investors to believe the Fed can stop hiking, we expect the Fed to take rates to 3.75% by December,'' analysts at TD Securities argued, given that the consensus is that CPI will have risen less in July by comparison to what June's reading showed, 9.1% vs. 8.8% expected whereas tomorrow's data is expected to come below 9%. 

Historical data chart

'The market needs to decide whether the slowing headline is more important than the sticky and strong core,'' analysts at TD Securities said. ''The USD remains sensitive to US data surprises. ''We will be short-term focused on whether this number shakes resilient risk sentiment, as that will also help inform near-term USD price action.''

NZD/USD technical analysis

NZD/YSD remains stuck between key resistance and support on the daily chart and has not managed to break the seal of 0.63 the figure so far this week.

0.6350 is key to the upside while the bears need to get below 0.6190. On a break higher, here is an area of price imbalance that could well be targetted once 0.6550 resistance is overcome. That area is between 0.6645 and 0.6720.