NZD/USD bears hammer back the bulls and print fresh lows

NZD/USD was trying to recover some ground after falling to as low as 0.6193 the prior day and reached a high of 0.6233 before collapsing yet again to mark a fresh low of 0.6184. 

Despite a soft across most other currencies, the Kiwi took the brunt of the selling on Tuesday with little rhyme nor reason behind the moves other than the escalating US-China tensions over Taiwan. China simulated precision strikes against key targets on and around Taiwan on Monday, the 2nd day of exercises near the island.

Domestically, the Reserve Bank of New Zealand said in its latest meeting minutes that it is expecting to see a further easing in domestic demand as well as a slowdown in core inflation and inflation expectations. However, last week, the central bank delivered a larger 50bps rate hike amid overheated inflation and employment and shattered market consensus of a 25bps rise. The central bank also said in its April monetary meeting minutes that there is no material conflict between lowering inflation and maintaining financial stability in New Zealand. The RBNZ called out a larger inflationary impact from the cyclone rebuild and upside risks to the fiscal outlook and does not want to see any fall in lending rates. 

US CPI eyed as key event

For the day ahead on Wednesday, the focus will be on US core and headline Consumer Price Index inflation which is expected to increase by 0.5% MoM in March. Some may argue that there have been signs of inflation intensifying again and labour market conditions remain too tight for the Fed. However, analysts at TD Securities said ´´core prices likely cooled off modestly in March, with the index still rising a strong 0.4% MoM,´´ as they look for recent relief from goods deflation to turn into inflation this month. ´´Shelter prices likely remained the key wildcard, while slowing gas prices and softer food-price gains will likely dent non-core inflation. Our m/m forecasts imply 5.1%/5.6% YoY for total/core prices,´´ the analysts explained. 

Meanwhile, solid jobs data in the Nonfarm Payrolls on Friday for March added to expectations that the Federal Reserve will complete one more rate hike. The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5%. The central bank is expected to hike rates by an additional 25 basis points at its May 2-3 meeting, before pausing in June. Markets are also pricing for the Fed to pivot by year-end on an expected recession.