NZD/USD steadies into the early Asian session after strong sell-off

• NZD/USD bears moved in despite soft US Dollar. 
• Attention turns to US CPI and Fed next week and local GDP. 

NZD/USD traded down some 0.65% on the day by the last 45 minutes of the US session on Wednesday. The US Dollar, however, was little changed on the day as per DXY as investors awaited US inflation data for May and the Federal Reserve’s interest rate decision next week.

´´The Kiwi is lower this morning, and this time it’s not because of USD strength (with the USD DXY little changed after a whippy night), but instead, the decline was an Antipodean AUD and NZD move,´´ analysts at ANZ Bank said:

´´Exactly what the driver was isn’t clear but both currencies have corrected against EUR and GBP, so call it a wash-up. One thing we do think bears saying is that the USD itself isn’t really budging despite having put things like the debt ceiling and bank wobbles behind it, and as markets eye an end to the tightening cycle.´´

´´Instead, it is holding up against most forecasters’ expectations. And last night’s rise in US bond yields may sustain it for a bit longer. New Zealand's first quarter manufacturing data today will be key for Gross Domestic Product next week, but we are also a little nervous about New Zealand's first quarter current account data next week.´´

Meanwhile, what might play into the hands of risk currencies such as the antipodeans is the sentiment around the central bank divergences.  The prospects for the Fed to pause raising interest rates next week while the likes of the Bank of Canada, Australia, and the European Central Bank align a chorus of hawkish counterparts should underpin the risk on currencies. With that being said, there is the risk of a hawkish surprise at the Fed.

´´The headwinds on the US Dollar (banking sector weakness, debt ceiling battle) have been resolved even as the tailwinds (strong economy and robust labor market) pick up,´´ analysts at Brown Brothers Harriman have argued, ´´We look for this post-Nonfarm Payrolls rally to continue.´´

´´Fed tightening expectations remain steady,´´ the analysts said. 

´´WIRP suggests odds of a hike this month around 30% and those odds rise to around 80% in July.  More importantly, WIRP suggests around 50% odds of a rate cut by year-end.  There has been quite a bit of Fed repricing in recent weeks but more needs to be done. ´´

´´ It’s going to be a close call for the Fed and the final determinant for its decision will be May CPI data next Tuesday.´´