NZD/USD retreats towards 0.6100 ahead of RBNZ Interest Rate Decision, US CPI

• NZD/USD fades corrective pullback from two-year low as risk dwindles.
• Inflation, recession fears exert downside pressure but pre-US CPI mood, WH Memo helped consolidate losses.
• RBNZ is likely to announce 50 bps rate hike but eyes will be on the Rate Statement.
• US CPI for June will be important considering the WH optimism.

NZD/USD fails to extend Tuesday’s profit booking from a two-week low, easing back to 0.6125 during Wednesday’s initial Asian session. While the White House (WH) memo could be linked to the quote’s previous rebound, cautious sentiment ahead of the Reserve Bank of New Zealand (RBNZ) Monetary Policy Meeting and the US Consumer Price Index (CPI) appears to weigh on the Kiwi pair of late.

The US economic data, including the June jobs report, are not consistent with a recession in the first or second quarters, the White House said in a memo released on Tuesday, as reported by Reuters. The news contributed to the market’s profit booking moves ahead of the key data/events.

However, the latest economic projections from the International Monetary Fund (IMF) appear to have renewed fears of a slowdown and renewed the risk-aversion wave. IMF cuts US 2022 GDP growth projection to 2.3% from 2.9% in late June, due to revised US data. “The Fund included the new forecasts in the full report of its annual assessment of the U.S. economy, which highlighted the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices,” said Reuters.

On the same line were covid fears from China as virus variant spreads in Shanghai and announced lockdown in Wugang city of Henan Province.

It’s worth noting that a slump in the US NFIB Business Optimism Index for June, to the lowest since early 2013, also adds strength to the economic slowdown fears and exerts downside pressure on the NZD/USD prices.

Amid these plays, Wall Street benchmarks closed in the red, despite the intermediate recovery, while the US 10-year Treasury yields printed the second day of the downside at around 2.97%.

Moving on, NZD/USD traders will have a busy day as the RBNZ and the US CPI for June are on the cards. While the RBNZ is up for a 0.50% rate hike, the Rate Statement will be critical for the Kiwi pair traders to watch as New Zealand’s central bank failed to please bulls despite announcing a rate lift in the last few times. It's worth noting that China trade numbers for June may also offer intermediate entertainment to the pair traders.

Also read: Reserve Bank of New Zealand Preview: Hitting the repeat button despite hard-landing fears

Elsewhere, the US CPI is expected to rise to 8.8% YoY from 8.6% and can entertain the pair bears should the details also favor the Fed’s aggression.

Also read: US June CPI Preview: Dollar rally could lose steam on soft inflation data

Technical analysis

The 10-DMA level surrounding 0.6170 precedes a three-week-old resistance line, close to 0.6180 at the latest, to restrict short-term NZD/USD upside.

Alternatively, downward sloping support lines from June 22 and January 27 coincide at 0.6025 to make it the key support.

That said, oscillators are less favorable to the NZD/USD bears.