NZD/USD surges towards the 100-DMA post US soft CPI, on risk-on mood

• The NZD/USD is advancing more than 2% on Wednesday, courtesy of broad US dollar weakness.
• Investors’ mood shifted positively once US inflation cooled down, while traders expected a less aggressive US Fed.
• US headline inflation and core CPI were lower and aligned with estimations.
• Fed’s Evans expects the Federal funds rate (FFR) to finish around 3.25-3.50% in 2022.

The NZD/USD advances sharply following a better-than-expected US inflation report that showed prices are tempering, a signal for traders that the Federal Reserve might continue to tighten, but at a slower rhythm, even though CPI remains above 8% YoY.

The NZD/USD exchanges hands at 0.6430 after hitting a daily low at 0.6275 during the Asian session. However, the major skyrocketed on US economic data.

NZD/USD skyrockets on lower US inflation-data

The Bureau of Labor Statistics reported that inflation in the US moderated when it revealed its report. The US Consumer Price Index for July increased by 8.5%, lower than the 8.7% estimations. Meanwhile, the core CPI remained unchanged at 5.9% YoY.

Traders cheered the report, with flows flying away from safe-haven assets towards riskier ones. Wall Street record gains between 1.50% and 2.52%, while the greenback remains on the defensive.

The NZD/USD advanced sharply from its lows above the 50-day EMA, remaining shy of the 100-day EMA at 0.6444.

Elsewhere, the Chicago Fed President Charles Evans said that the CPI report is the “first positive,” while adding that inflation is unacceptably high. Evans said that the US Federal Reserve is “not done” with raising rates, and he would expect rates to finish around the 3.25-3.50% level by the end of 2022.

On the kiwi side, inflation expectations reached 3.07% on Monday, lower than the previous month’s reading at 3.29%, which could be considered that price pressures might be peaking, though that would not deter the RBNZ from hiking rates again.

Westpac analysts, in a note, commented that even with expectations lowering, they are forecasting an additional 50 bps rate increase to the Overnight Cash Rate at the next week’s RBNZ policy meeting.

What to watch

The US economic docket will feature Minnesota Fed President Neil Kashkari on Wednesday. By Thursday, the calendar will unveil prices paid by producers, also known as PPI and Initial Jobless Claims.

NZD/USD Price Analysis: Technical outlook

The NZD/USD is neutral biased, despite Wednesday’s price action posing a threat for NZD/USD sellers. If buyers like to regain control, they would need a decisive break above the 100-day EMA, which could put into play a test of the June 3 high at 0.6576, almost 40 pips below the 200-day EMA. Once that is achieved, then the major bias would shift to neutral-upwards. Nevertheless, sellers remain hopeful that if the NZD/USD prints a daily close below 0.6400, that would put them in charge.

NZD/USD Daily chart