NZD/USD bulls in anticipation of a US dollar correction

At 0.6244, the NZD/USD is attempting to stabilise after being on the backfoot due to a firmer US dollar and a broad sense of risk-off in markets. US data was unsettling and inflation fears have advanced again and choppy trading persists. US stocks started to give way midday on wall Street at the same time that a consumer confidence gauge sank amid rising inflation expectations, undermining the improvement in investor sentiment after China relaxed certain COVID-19 restrictions.

The Conference Board's measure of consumer confidence fell to 98.7 in June from 103.2 in May while the Board's inflation expectations index rose to 8% from 7.5%, the highest since the series began in 1987.  ''The weakness in expectations brought the index back to levels last seen in 2013. The average 12-month inflation expectation rose to 8.0% vs 7.5%,'' analysts at ANZ Bank explained. ''The FOMC won’t like that, and if higher surveyed inflation expectations are recorded elsewhere, that could push the FOMC into another 75bp hike in July.''

Meanwhile, US stocks fell and stayed into negative territory despite opening the session higher as a consumer confidence gauge for June sank amid rising inflation concerns. The Dow Jones Industrial Average slid 1.6% to 30,946.99, the S&P 500 was down 2% to 3,821.55 and the Nasdaq Composite fell 3% to 11,181.54.

Equally, the US dollar shot higher from below 104, making gold more expensive for international buyers. US dollar bulls moved in on euro weakness as European Central Bank (ECB) President Christine Lagarde offered no fresh insight into the central bank's policy outlook. Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations. The US dollar index (DXY), which had made a two-decade high of 105.79 this month, was last trading at 104.420. The DXY had been as low as 103.77 and as high as 104.606 on Tuesday.

''NZD trading ranges have become tighter and tighter over the past week or so, and the overnight move lower looks ominous from a technical perspective, with a break out of the “bearish pennant” now confirmed,'' analysts at ANZ bank explained.

''Irrespective of technicals, the big story is (as it has been for a while), the USD’s refusal to budge from lofty levels despite fears that Fed tightening will slow the US economy. We get local confidence data later this week, but both business and consumer sentiment have already tanked, and there doesn’t seem to be a lot for the NZD to cheer about.''