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