NZD/USD: Immediate Prospects

The dollar strengthened sharply after receiving strong support from the latest US inflation data published on Tuesday (at 12:30 GMT). Its DXY jumped 2% from yesterday's 4-week low at 107.45, climbing back above the 109.00 resistance level.

According to the US Bureau of Labor Statistics, consumer inflation again began to gain momentum in August. It follows from the report that inflation in the US in August rose above expectations: the consumer price index (CPI) came out with a value of +8.3% YoY against the forecast of +8.1% and +8.5% in the previous month. On a monthly basis, inflation rose by +0.1% from 0% in July, higher than the expected decline of -0.1%.

That, in turn, makes a 75 basis point rate hike at next week's FOMC meeting now "virtually guaranteed," economists say. In their opinion, "a sustainable return to 2% inflation is now becoming even more distant," and the Fed still has "a long way to go" to return inflation to the target level. And this means that more than one increase in the Fed's interest rate by 0.75% is possible at each subsequent meeting. This is a strong bullish factor for the dollar.

Of course, there is one "but"—if inflation in the US does not really start to slow down.

Now, if obviously weak other important macro data does not come from the US until the next publication of inflation indicators (in the middle of next month), then the strong bullish momentum received yesterday will support the positive dynamics of the dollar.

As of this writing, the dollar index (DXY) remains above 109.00 at 109.24. Its positive dynamics continues. A break of yesterday's high at 109.62 will see the DXY rise further to 20-year-old levels above 120.00.

Today, market participants will pay attention to the publication (at the beginning of the US trading session) of US producer price indices. They have less impact on the market and dollar quotes. Nevertheless, they will add "additional colors" to the overall picture of the inflation situation in the United States.

Market participants, who follow the quotes of the New Zealand dollar, will today study the report of the Statistics New Zealand with data on the country's GDP for the 2nd quarter (its publication is scheduled for 19:45 UTC).

"This report reflects the overall economic performance and has a significant impact on the Reserve Bank of New Zealand's monetary policy decisions.

Growth in GDP means an improvement in economic conditions, which makes it possible (with a corresponding increase in inflation) to tighten monetary policy, which, in turn, usually has a positive effect on the quotes of the national currency."

Previous values (in annual terms): +1.2%, +3.1%, -0.2%, +2.9%, -0.8%, +0.2%, -11.3%, 0%, +1.7%. Forecast for Q2 2022: +1.0% (+0.2% YoY), which is likely to have a positive impact on NZD. Worse than expected/previous data will negatively impact NZD quotes, in which case the NZD/USD pair will continue to decline after yesterday's strong fall.

As of writing, the NZD/USD pair is trading near 0.5990, falling deeper into the descending channel on the weekly chart. In general, the downward dynamics of NZD/USD prevails, while the pair remains in a long-term bear market zone.