NZD/USD plunges to near 0.6780 on lower-than-expected NZ inflation at 6.9%

• The lower inflation print at 6.9% has strongly pushed the kiwi pair below 0.6780.
• A tad lower inflation print may sustain the odds of one more rate hike by the RBNZ.
• The announcement of balance sheet reduction along with a rate hike will bring immense bids for the DXY.

The NZD/USD pair has witnessed a sheer fall to near 0.6776 after the release of the NZ Consumer Price Index (CPI) at 6.9%. Statistics New Zealand has reported the yearly NZ inflation lower than the market consensus of 7.1% but significantly higher than the prior print of 5.9%. While the quarterly NZ CPI print has landed at 1.8%. A preliminary reading was seen at 2% and the previous figure was 1.4%.

This has still advanced the odds that the Reserve bank of New Zealand (RBNZ) will continue with the spree of raising the Official Cash Rate (OCR) further. In its last monetary policy announcement, the RBNZ raised its OCR by a whopping figure of 50 basis points (bps) to reduce the risks of inflation. After doing so, the OCR has reached 1.5%. The RBNZ clearly mentioned in its last monetary announcement that the elevation of this quantitative measure is the only way to contain the inflation mess. Rising household bills of energy are hurting the economy and henceforth may reduce the confidence of the consumers in the economy.

Meanwhile, the US dollar index (DXY) is facing headwinds of profit-booking, which has dragged the asset lower by 0.80% from its recent high of 101.03 on Wednesday. The elevated levels of the DXY resulted in long-liquidations, however, it should not be considered a reversal by the market participants yet.

San Francisco Fed President and FOMC member Mary Daly on Wednesday said that the case for a 50 bps rate hike in May is now "complete" and that the Fed can also make an announcement on the reduction of its balance sheet at the next meeting, reported Reuters. This is going to fetch bids for the mighty greenback in case of the announcement of balance sheet reduction along with a jumbo rate hike.