NZD/USD eases from over one-week high, struggles to find acceptance above 0.5700 mark

• NZD/USD rallies on hotter-than-expected Q3 inflation figures from New Zealand.
• The risk-on mood weighs on the USD and further benefits the risk-sensitive kiwi.
• Hawkish Fed expectations help limit the USD downside and seem to cap the pair.

The NZD/USD pair gains strong positive traction for the second successive day on Tuesday and climbs to a fresh one-and-half-week high during the early North American session. Spot prices, however, struggle to find acceptance above the 0.5700 mark and retreat a few pips from the daily peak.

The New Zealand dollar gets a strong boost in reaction to hotter domestic consumer inflation for the third quarter, which lifts bets for more rate hikes by the Reserve Bank of New Zealand. On the other hand, the ongoing rally in the equity markets undermines the safe-haven US dollar and offers additional support to the risk-sensitive kiwi.

The USD downtick, however, remains cushioned amid firming expectations that the Federal Reserve will stick to its aggressive policy tightening path to combat stubbornly high inflation. In fact, the current market pricing indicates a nearly 100% chance of another supersized 75 bps rate hike in November, which acts as a tailwind for the USD.

Furthermore, better-than-expected US Industrial Production data, which recorded a growth of 0.4% in September as compared to -0.1% previous, offers some support to the greenback. This turns out to be a key factor capping the upside for the NZD/USD pair and warrants some caution before positioning for any further near-term appreciating move.

Market participants now look forward to a slew of important Chinese macro data, due for release during the Asian session on Wednesday. This will play a key role in influencing the broader market risk sentiment. Apart from this, the USD price dynamics should provide a fresh impetus to the NZD/USD pair and help determine the near-term trajectory.

Technical levels to watch