NZD/USD struggles around 0.6150 despite hot NZ inflation, and further RBNZ tightening

• New Zealand inflation topped RBNZ’s and economists’ expectations, will the bank hike 75 bps?
• Sentiment shifted mixed on Apple’s report that hiring will slowdown, reigniting US recession worries amongst investors.
• ANZ Bank expects the RBNZ Overnight Cash Rate (OCR) to end at 4% rather than 3.5%.

The NZD/USD barely recorded gains on Monday, courtesy of a late risk-off impulse spurred by news that the US tech giant Apple plans to slow hiring, fueling US recession fears amongst market participants, which sought safety, which in the FX space, some of the majors, witnessed a trim of its early gains vs. the greenback.

The NZD/USD is trading at 0.6151, up almost 0.06%, after hitting a daily high around 0.6200,  but sellers stepped in and outweighed buyers and tumbled the pair towards current price levels.

NZD/USD remains positive on NZ’s high inflation, and expectations of additional hikes

The market mood turned sour, as shown by US equities. The greenback is recovering some ground, as shown by the US Dollar Index, rebounding from daily lows around 106.892 and climbing towards 107.354, though it stays negative by almost 0.60% during the day.

The lack of US economic data leaves traders looking toward last week’s US inflation reports, Retail Sales, and the UoM Consumer Sentiment Index (CSI). US inflation, led by consumer and producer price indices, rose to fresh multi-decade highs, sparked by high energy and food prices. However, the core CPI figure stood below the 6% threshold, falling for the third consecutive month, which would deter Fed officials from triggering a 100 bps rate hike. Further strengthening the case is UoM Consumer Sentiment inflation expectations, which descended from 3.1% to 2.8% in 5 years.

On the New Zealand side, the Consumer Price Index for Q2 rose by 7.3% YoY, higher than the 6.9% estimated by economists and topping the 7% estimated by the Reserve Bank of New Zealand (RBNZ). The NZD/USD reacted positively to the report, jumping from 0.6149 to 0.6170, as further tightening would be needed, as said by analysts at ANZ Bank.

“We have changed our OCR call and now expect the run of 50bp hikes to continue through to November, meaning an OCR endpoint of 4.0% rather than 3.5%. A 75bp hike at the August MPS is a very real possibility, particularly if the labour market data on 3 August delivers another hawkish surprise,” ANZ analysts wrote.

What to watch

The New Zealand economic docket will feature the Global Dairy Trade Price Index on Tuesday. On the US side, the calendar will feature June’s Building Permits and Housing Starts alongside the Redbook.

NZD/USD Key Technical Levels