US Inflation Spurs USD Surge, NZD Weakens on Inflation Expectation

Hotter-than-expected US inflation data on Tuesday triggered a notable surge for the greenback. As expectations for Fed rate cuts are continually pushed back, the BBDXY recorded a 0.64% increase, hovering just below the day's highs. Among the worst performers on Tuesday, the NZD faced various challenges, leading NZDUSD to decline by 1.25%, approaching the 0.6050 level. The weakness began during the Asian session on Tuesday following a decrease in RBNZ's Q1 inflation expectations, contradicting their recent hawkish stance and ANZ's projection of two rate hikes this year.

• NZDUSD experienced a sell-off in the Asian session, driven by softer-than-expected 2yr inflation expectations, which dropped to 2.50% from 2.76%. The pair reached session lows of 0.6096. Although it attempted to break and hold below 0.6100 during the European session, buying pressure emerged, allowing for a recovery to 0.6125. Post-US CPI release, the pair quickly found new lows, touching 0.6050, nearing the lowest point for the year. At the time of writing, it hovers just above 0.6060. A break and hold below 0.6050 could signal further weakness, potentially reaching the 0.6000 lows from May 31. Notably, the 20 and 50-day EMAs are positioned at 0.6120/6135.
• AUDNZD, having initially gained ground following the release of NZ 2yr inflation expectations data on Tuesday, has since reversed those gains to trade at 1.0650. It now sits in the middle of recent ranges, with support near the 1.0600 lows from Friday and resistance at 1.0795/1.0700 highs from Wednesday. The 20 and 50-day EMAs are situated at 1.0705/1.0745.
• In terms of data releases, New Zealand saw Jan Home sales earlier, reporting a 4.9% increase compared to the previous 14.1%, and Jan Food Prices at 0.9% versus the previous -0.1%. Despite these data releases, there has been little market reaction observed.