NZD/USD aims to recapture 0.6230 as risk appetite improves, China Inflation eyed

• NZD/USD is looking to recapture the immediate resistance of 0.6230 amid the risk-on mood.
• The street is anticipating that weaker oil prices in March would result in further softening of US headline inflation.
• China’s CPI monthly figure would accelerate by 0.1% vs. a contraction of 0.5% reported earlier.

The NZD/USD pair is looking to extend its recovery toward the immediate resistance of 0.6230 in the early Asian session. The Kiwi asset rebounded firmly after finding a stellar buying interest near the round-level support of 0.6200. The recovery move in the Kiwi asset was backed by a correction in the US Dollar Index (DXY) as investors started ignoring the risk associated with more rate hikes from the Federal Reserve (Fed) and shifted funds to risk-sensitive assets.

S&P500 futures have added some gains in the Asian session after a mild positive Monday. Gap down opening in US equities on Monday was fully offset by recovery. Also, investors ignored volatility ahead of the quarterly earnings season. Meanwhile, US yields scaled higher as investors are convinced about one more rate hike from the Federal Reserve (Fed) next month. The return offered o 10-year US Treasury yields rebounded firmly above 3.41%.

Going forward, the release of the United States inflation data will provide more clarity on Fed’s interest rate guidance. The street is anticipating that weaker oil prices in March would result in further softening of headline inflation. However, core inflation could be sticky further due to solid labor demand.

Economists at BBH expect “Headline inflation at 0.2% m/m and 5.1% y/y vs. 0.4% m/m and 6.0% y/y in February.  A core is expected at 0.4% m/m and 5.6% y/y vs. 0.5% m/m and 5.5% y/y in February.” 

On the New Zealand front, investors are awaiting the release of China’s inflation data. Annual inflation is expected to remain steady at 1% while the monthly figure would accelerate by 0.1% vs. a contraction of 0.5% reported earlier. This indicates that the retail demand is in a recovery mode, which will improve the overall economic outlook.

It is worth noting that New Zealand is one of the leading trading partners of China and the solidification of China’s economic prospects will also support the New Zealand Dollar.