New Zealand Dollar rallies after US CPI result lifts risk appetite

• The New Zealand Dollar recovers on Tuesday after drifting lower for over 10 days straight.
• The Kiwi rebounds after US CPI data shows an unexpected slowdown in October, weighing on USD and lifting sentiment. 
• NZD/USD reverses its bearish short-term trajectory and aims for the November highs. 

The New Zealand Dollar (NZD) trades higher against most counterparts after the release of softer-than-expected US inflation data cheers Wall Street with the prospect of cheaper borrowing costs, lifting risk appetite and supporting commodity currencies like the Kiwi.  

For NZD/USD, the short-term technical situation dramatically reverses after temporarily flirting with deeper losses. An earlier break below key support at 0.5874 had suggested a possible continuation lower but the pair reversed at a key Fibonacci level and now trades back above 0.5900 as the US session gets underway. 

Daily digest market movers: New Zealand Dollar: US CPI brings uplift to Kiwi

• The New Zealand Dollar trades higher after the release of US Consumer Price Index (CPI) data shows a slowdown in inflation in October and triggers an improvement in risk appetite.
• As a commodity currency, the NZD tends to do well when market sentiment is risk-on.  
• US Consumer Price Index (CPI) data showed no-change in broad headline inflation in October (0.0%) when economists had forecast a rise of 0.1% MoM. Year-on-year, a 3.2% increase was registered when 3.3% had been expected. 
• For Core CPI, the data showed a 0.2% increase MoM versus 0.3% expected and 4.0% YoY against 4.1% forecast. 
• The data suggests even less likelihood of the Federal Reserve (Fed) raising interest rates at their December meeting or at the start of 2024. Probabilities were already low at about 15%, but these have dropped even further following the release.
• The US Dollar has fallen after the data as the prospect of no further increases to interest rates makes the US a less attractive place for global investors to park their capital, reducing demand for the USD. 
• Chinese Industrial Production and Retail Sales data out on Wednesday morning at 02:00 GMT could also impact the Kiwi since China is its largest trading neighbor. 
• Recent downbeat Chinese inflation data has dampened the outlook for global growth, weighing on NZD last week. 
• An inflation report from the RBNZ showed both one-year-out and two-years-out inflation expectations for New Zealand falling in Q3 compared to the previous quarter.
• The lower inflation expectations imply the RBNZ is less likely to raise interest rates. 
• Tuesday’s lower-than-estimated CPI data will have overshadowed both the higher University of Michigan inflation expectations data out on November 10, and the recent hawkish tone of many Fed officials. 

New Zealand Dollar technical analysis: NZD/USD surges higher at 61.8% Fib level 

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – finds a floor at around 0.5862, the key 61.8% Fibonacci retracement of the rally from the year-to-date lows, and lifts off! It surges higher at the start of the US Session on Tuesday after the release of US CPI data weakens the US Dollar. 

New Zealand Dollar vs US Dollar: Daily Chart

The pair is in a large part reversing the steady decline since November 3, however, it needs to make a higher high above 0.6001 to re-affirm belief in the short-term uptrend. 

A break above 0.6001 would confirm the short-term bullish bias again. The likely target thereafter would be the 0.6055 October high.  

In the event it is unable to break above 0.6001, there remains a risk of a capitulation. A break below the 0.5862 day’s lows would be required to signal a resumption of the short-term bear trend. The main targets to the downside would then be 0.5790, followed by 0.5773. 

The medium and long-term trends are both still bearish, suggesting the potential for more downside remains strong. 

Bulls would have to push above the 0.6055 October high to change the outlook in the medium term and indicate the possibility of the birth of a new uptrend. Such a move would then target the 200-day Simple Moving Average (SMA) at around 0.6100.