NZD/USD reacts to US CPI data, await US PPI and next week's RBNZ meeting

• Following the release of the US inflation data, which came in below estimates, the NZD/USD experienced a brief surge.
• US CPI for July was recorded at 3.2% YoY, while Core CPI, which excludes volatile items, was at 4.7% YoY.
• Most analysts predict the Reserve Bank of New Zealand (RBNZ) will maintain the 5.50% interest rate during the August 16 meeting, with only a minority anticipating a hike to 5.75% - Reuters Poll.

NZD/USD began the Asian session on a positive note gaining 0.01% after Thursday’s session was characterized by a soft US inflation report that favored the Greenback, despite CPI being lower than estimates. The NZD/USD is trading at 0.6022, above its opening price.

Amid soft US inflation figures, the Kiwi-dollar pair sees a temporary spike but remains cautious ahead of significant economic releases

The US Department of Labor revealed the July US Consumer Price Index (CPI), which printed 3.2% YoY above the prior month’s 3%, but below estimates of 3.3%; while excluding volatile items, the so-called core CPI, dipped to 4.7% YoY, below estimates and the previous month 4.8%.

Even though the CPI release supports a September pause, it’s too early to declare victory on inflation, said San Francisco Fed President Mary Daly. She refrained from deciding on the next month’s meeting, though she added she’s data dependent and pushed back against rate cuts.

After the headline crossed traders’ screens, the NZD/USD spiked, but the uptrend was short-lived, as the NZD/USD reversed its gains and closed at 0.6020 for a 0.50% loss. The Greenback recovered some ground toward the end of the session, with the US Dollar Index (DXY) finishing at 102.625, gaining 0.14%.

Surging US Treasury bond yields was another theme to consider, as the US 10-year benchmark note gained ten basis points, at 4.107%, after a weak US 30-year bond auction.

Other data revealed that the labor market gave another sign of easing, though it should be viewed cautiously, as the latest figures have not been consistent. Initial Jobless Claims for the week ending July 29 exceeded forecasts of 230K, advanced 248K.

On the New Zealand front, Business PMI came at 46.3, below expectations of 49.4, and trailed June’s 47.5. Recently a Reuters poll said that most analysts estimate the Reserve Bank of New Zealand (RBNZ) will keep rates unchanged at 5.50%, at a 14-year high, for the second straight meeting,  on August 16. Only two of 29 analysts said that rates would need to rise to 5.75%.

Ahead on the US economic agenda, the release of the Producer Price Index (PPI) for July, alongside the University of Michigan Consumer Sentiment Poll, could pave the way for further downside on the NZD/USD. Inflation data pushing upwards can reignite discussions amongst Fed members to increase borrowing costs, suggesting further US Dollar strength. Otherwise, the NZD/USD could aim toward the 0.6100 figure ahead of the weekend.

EUR/USD Technical Levels