• NZD/USD holds in positive territory as the US dollar slides.
  • Inflation risks are supporting the currency complex and the NZ dollar.
  • US PPI does not meet the consensus but inflation concerns are rampant.  

At the time of writing, NZD/USD is trading at 0.7025 and up almost 1% on the day after rising from a low of 0.6958 to a high of 0.7040.  The US dollar continues to underperform despite the strong US Consumer Price Index data and hawkish Federal Reserve minutes which outlined more detail around the central bank’s intentions to start to taper, perhaps as soon as November. The greenback was touching a 10-day low as rising risk appetite put a brake on the safe-haven currency’s recent rally, while the Aussie and Kiwi dollars gained.

US dollar sinks further on profit-taking

Expectations that the US Federal Reserve would tighten monetary policy more quickly than previously expected amid an improving economy and surging inflation had fuelled a rise in the greenback since early September. Profit-taking has ensued and improved risk sentiment has also dented the greenback.

Additionally, Producer price growth slowed in September to the lowest level this year as airline passenger service costs plunged. The seasonally adjusted producer price index rose 0.5%, compared with a 0.7% gain in August, the Bureau of Labor Statistics said Thursday. The latest print was the lowest since December and came in line with the consensus on Econoday.

In other data, a Labor Department report showed US Consumer Prices rose solidly in September, and they are likely to rise further amid a surge in energy prices, potentially pressuring the Fed to act sooner to normalise policy. The Fed’s September meeting minutes yesterday also showed that a growing number of policymakers were worried that high inflation could persist. The dollar index is flat at the time of writing on the day at 93.999 but met its lowest since Oct 5 at 93.759. On Tuesday this week, it had reached a one-year high at 94.563.

Commodity currencies bid on the inflation hedge

The markets are concerned about the nature of the global inflation cycle and its persistence. With these global factors dominating, commodity currencies can benefit from the inflation hedge. In this regard, next week’s NZ CPI data will be a key domestic event. 

NZD/USD technical analysis

The price on the weekly chart is on the verge of a fresh bullish impulse but the flag’s resistance is not far off. A break there could lead to a significant rally while, otherwise, the will be prospects of a lower low to the channel’s support.