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Kiwi Soars as Dollar Dives: US Inflation Data Sparks Market Surge

The New Zealand Dollar (NZD), often referred to as the Kiwi, has witnessed a remarkable rebound against the US Dollar (USD), climbing back into the crucial 0.6000 level. This surge comes in the wake of significant developments in US economic indicators, notably the Consumer Price Index (CPI) and impending Producer Price Index (PPI) and Retail Sales data.

Key Points:

  1. πŸ“ˆ Strong Rebound: The NZD/USD pair soared, marking its best trading day since July, fueled by a risk-on sentiment in broader markets and a dip in US CPI.
  2. πŸ‡ΊπŸ‡Έ US Economic Data: Softening US CPI at 3.2% against the forecasted 3.3%, and a 0.0% month-over-month change, suggests a slowdown in inflation, impacting the Dollar.
  3. πŸ“Š Upcoming Data Watch: Market focus shifts to upcoming US PPI and Retail Sales, with expectations of a flat Core PPI and a potential decline in Retail Sales.

NZD/USD H4 Chart

The NZD/USD pairing has experienced a dramatic uplift, rising by almost 2.6% from Tuesday’s lows, driven by a renewed appetite for risk among investors. This remarkable rise is attributed to the US CPI inflation reading, which registered below market expectations, indicating a quicker than anticipated easing of inflation.

The drop in headline inflation has led to a broader decline in the US Dollar across various currencies, with investors now envisioning a shift in the Federal Reserve‘s “higher for longer” stance towards monetary policy. This anticipation has set the stage for an earlier start to the rate cut cycle by the Fed.

Forex markets are now buzzing with the slowdown in US inflation and its impact on the Dollar. The next significant events on the economic calendar include the US Producer Price Index (PPI) and Retail Sales figures. Expectations are set for the Core US PPI to remain unchanged at 2.7% year-over-year, while Retail Sales are forecasted to show a significant reversal from September’s 0.7% growth, potentially declining by 0.3%.

Technically, the NZD/USD still faces substantial pressure despite its recent bounce back. The currency pair remains below the 200-day Simple Moving Average (SMA), which is currently trending towards 0.6100. The immediate resistance is located around the early October highs of 0.6050, while support is forming between 0.5800 to 0.5900.

On a related note, the New Zealand Dollar’s recovery on Tuesday came after a continuous downtrend for over ten days. The reversal was largely influenced by the US CPI data, which pointed to an unexpected slowdown in October. This development weighed on the USD, enhancing the appeal of commodity currencies like the Kiwi.

The NZD/USD, which had been flirting with deeper losses, found support at a critical Fibonacci level, reversing its course and trading above the 0.5900 mark. This change in trajectory was further bolstered by the broader market sentiment shifting to risk-on following the release of the CPI data.

In addition to the US data, Chinese Industrial Production and Retail Sales figures, due on Wednesday, could also impact the Kiwi, given China’s status as New Zealand’s largest trading partner. Recent subdued Chinese inflation data had previously exerted downward pressure on the NZD.

Furthermore, an inflation report from the Reserve Bank of New Zealand (RBNZ) showed a decrease in both one-year and two-year-out inflation expectations, suggesting a less aggressive stance on interest rate hikes by the RBNZ.

The financial markets will continue to closely monitor these developments, especially with the Fed’s potential policy shift and the upcoming Chinese economic data, which are likely to play a pivotal role in shaping the NZD/USD dynamics in the near term.