NZD/USD balances below 0.6500 on higher-than-expected US inflation

• NZD/USD is establishing below 0.6500 as investors are cautious over red-hot US inflation.
• The DXY is performing stronger on upbeat US NFP and higher forecasts for inflation.
• The RBNZ will reach its neutral rates faster than the other Western central banks.

The NZD/USD pair is displaying back and forth moves in a narrow range of 0.6485-0.6495 as investing community is focusing on the release of the US Consumer Price Index (CPI) on Friday. The kiwi bulls witnessed extreme selling pressure after failing to sustain above the critical resistance of 0.6530 on Monday.

A preliminary estimate for the US CPI is 8.2%, a little lower than the prior print of 8.3%. Despite the two rate hike announcements of 25 basis points (bps) and 50 bps by the Federal Reserve (Fed) in March and May’s monetary policies, the agency has failed to bring significant slippage in the annual inflation rate. The US annual inflation rate is stabilizing above 8%, which will keep declining the worth of the wallets of the US households.

Meanwhile, the US dollar index (DXY) is gearing up for further upside as the optimism on upbeat US Nonfarm Payrolls (NFP) has not faded yet. The DXY is oscillating in a 102.37-102.43 range and an upside break is expected going forward. Last week, the US labor agency reported the additional jobs generated in May at 390k, much higher than the expectations of 325k. This has underpinned the greenback against the antipodean.

On the kiwi front, the pace of hiking interest rates by the Reserve Bank of New Zealand (RBNZ) is much faster than other Western leaders. Therefore, the RBNZ will reach neutral rates sooner than other major central banks. It would be worth seeing whether the quick rate hikes by the RBNZ will perform the required job effectively or not.