NZD/USD dives after US PCE suggests further Fed rate hikes needed

• NZD/USD is set to finish the week with minimal gains of 0.36%.
• Sentiment in the FX markets deteriorated on news that US PCE is closing to the 7% threshold.
• NZD/USD Price Analysis: Neutral-to-downward biased and might aim towards 0.6100 in the near term.

The NZD/USD retraces from four-week highs hit around 0.6328, towards the 0.6270s area, amidst an upbeat market mood with global equities rallying, despite the Fed’s favorite inflation gauge, approaching the 7% threshold, signaling that further rate hikes are yet to come. Nevertheless, in the FX space, a risk-off tilted mood keeps safe-haven afloat, to the detriment of risk-sensitive currencies like the NZD, so the NZD/USD is trading at 0.6270 at the time of writing.

Negative sentiment in the FX space weighed on the NZD/USD

The NZD/USD felt the pressure after the US Commerce Department revealed that the Personal Consumption Expenditure (PCE), the Fed’s favorite gauge for inflation, increased by 1% MoM and rose 6.8% YoY vs. expectations of a 6.7% rise. The so-called core PCE, which extracts volatile items, increased from 4.7% foreseen to 4.8% YoY. The major reacted downwards, tumbling 100 pips to its daily low at 0.6218, but found bids and trimmed some of those losses.

Before Wall Street opened, Atlanta’s Fed President Raphael Bostic said that the Fed is “going to have to do more in terms of interest-rate moves.” Bostic said he does not think the country is in a recession after Thursday’s weaker than estimated Advanced GDP for the second quarter at -0.9%.

On the New Zealand dollar side, an absent economic calendar during the week left the kiwi adrift to market sentiment and US dollar dynamics.

What to watch

The New Zealand economic docket would feature the Global Dairy Trade Price Index, alongside Employment data and Business Inflation Expectations. On the US front, the calendar will be packed. On Monday, the S&P Global and ISM Manufacturing PMIs will shed some light on the ongoing slowdown in the US economy.

NZD/USD Price Analysis: Technical outlook

The NZD/USD rallied sharply above the 50-day EMA at 0.6305, but buyers could not hold the level, giving way to sellers. Albeit tumbling 100-pips to the daily low, the NZD/USD recovered just above the 20-day EMA at 0.6196, keeping the major trapped between both moving averages. So, from the daily chart perspective, the NZD/USD is still neutral-to-downward biased. Confirmation of the previously mentioned is that the Relative Strength Index (RSI), which, although it’s still in bullish territory, its slope is turning downwards, accelerating for a break below its 7-day RSI SMA.