- NZD/USD extends its losses for the third consecutive day.
- No economic data from NZ and the US keep the pair trending in the dynamics of US dollar demand.
- Philadelphia Fed’s Harker argued that the Fed can raise rates while still tapering if necessary.
The NZD/USD slides for the third day in a row, down 0.36%, trading at 0.7034 during the New York session at the time of writing. Early in the Asian Pacific session, the New Zealand dollar capped its downfall for a couple of hours around the 0.7054-0.7071 range. However, it failed to gain traction amid a light NZ economic calendar before dropping towards 0.7000, driven by US dollar demand.
On Wednesday, US inflation rose to levels last seen in the 1990s. The Consumer Price Index (CPI) for October rose sharply to 6.2%, higher than the 5.3% foreseen. The so-called Core CPI that excludes volatile items like energy and food edged up to 4.6%, higher than the 4% estimated, per the US Labor Department.
“The transitory inflation argument is coming under increasing scrutiny, and the risk of a policy error on inflation has the potential to unsettle risk appetite,” per ANZ analysts In a report for customers. Further, the bank added that it seems inevitable that there would be upward revisions in inflation forecasts and in the dot plot when the Fed releases its Summary of Economic Projections (SEP) in the next meeting.
It is worth noting that Philadelphia Fed’s Harker argued that the Fed can raise rates while still tapering if necessary, adopting a tool that the Bank of England (BoE) would use as it begins to tighten economic conditions in the UK.
US Dollar Index breaks above 95.00 for the first time since July 2020
Meanwhile, the greenback successfully gains traction after the US CPI report, extending its lead against most G8 currencies. The US Dollar Index, which tracks the buck’s performance versus a basket of six rivals, advances 0.15%, breaking above 95 for the first time since July 2020, sitting at 95.03.
Therefore, for the remainder of the week, the NZD/USD price action will lie in the hands of US dollar dynamics and market sentiment. On Friday, the New Zealand economic docket will feature Business NZ PMI for October, with the previous reading at 51.4.
On the US front, the University of Michigan Consumer Sentiment Index for November will be revealed. Also, New York Fed’s President John Williams will speak at a virtual conference hosted by the New York Fed.
NZD/USD Price Forecast: Technical outlook
In the daily chart, the NZD/USD accelerated its downward move, but it was capped by the 0.7000 psychological support and the 100-day moving average (DMA) lying at 0.7023. Nevertheless, in the near-term still tilted to the downside, as the 50 and the 200-DMA stand above the spot price. Also, the Relative Strength Index (RSI) recently broke the 50-midline, sitting at 43, aiming lower, adding another bearish signal to the New Zealand dollar outlook.
However, to accelerate the downtrend, NZD/USD sellers will need a daily close below 0.7000. In that outcome, the next support would be 0.6950, followed by an upslope trendline that travels from August lows towards September lows, lying around the 0.6920-30 area.