Looking at the NZD/USD daily chart, it is evident that this pair has been trading in a tight range since the middle of March, with a slow price action. We did see a jump higher when the Reserve Bank of New Zealand surprised the market with a higher-than-expected interest rate hike, but buyers couldn’t hold the price above the 100 SMA (green) on the daily chart, despite piercing it.

At the bottom, the 200 SMA (purple) has been acting as support, keeping this pair afloat for more than a month. This rangebound price action shows uncertainty in the markets, with one side betting on a recession or higher FED rates in favor of the USD, while the other side betting on a soft landing which would go in favor of the NZD as a risk asset.

However, the recent economic data has not been promising. Last Friday, the US retail sales data fell below expectations, causing a return of recession fears, which resulted in a surge in the value of the USD. Furthermore, the University of Michigan survey revealed a significant increase in the one-year US inflation expectations, which further boosted the downward momentum for risk currencies.

New Zealand Consumer Price Index Report

• Q1 CPI 1.2% vs. 1.7% expected
• Q4 2022 CPI was 1.4%
• Lower energy prices in the quarter a helpful input
• March CPI YoY 6.7% vs 7.1% expected
• Prior CPI YoY was 7.2%

For non-tradeables:

• CPI QoQ +1.7% and CPI YoY+6.8%
• Domestic price pressures remain, services a key driver of this
• The y/y is the highest since the series began in June 1999
• Non-tradeable inflation measures final goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition.

Inflation has come in below estimates but still at elevated levels. Markets are pricing a 25bp rate hike from the Reserve Bank of New Zealand (the meeting is May 24 May (New Zealand time)) and this data would not seem to be enough to counter this.

NZD/USD Live Chart