NZD/USD Up on Short-Covering Ahead of CPI Report

The New Zealand Dollar is trading higher on Wednesday in reaction to an unexpected drop in U.S. Treasury yields overnight. The move widened the spread between New Zealand Government bond yields and U.S. Government bond yields, making the U.S. Dollar a less-attractive investment. Traders could also be paring positions ahead of this week’s major inflation report.

At 09:24 GMT, the NZD/USD is trading .6781, up 0.0048 or +0.71%.

Traders Brace from Huge Annual Inflation Jump

The New Zealand cash rate is up at 1.5% and another aggressive half-point hike could come in May should inflation figures on Thursday prove as shocking as some expect.

Median forecasts see consumer price inflation accelerating to an annual rate of 7.1%, the fastest since 1990 and up from 1.5% in the first quarter of last year.

US 10-year Treasury Yields Falls Slightly to 2.9%.

The U.S. 10-year Treasury yield fell on Wednesday morning, to hover above 2.9%. This same rate touched 2.94% on Tuesday, a level not seen since late 2018.

Meanwhile, Atlanta Federal Reserve President Raphael Bostic on Tuesday expressed concern about the impact that rate hikes could have on the U.S. economic recovery, saying the central bank shouldn’t move so fast that it chokes off growth.

Bostic did not commit in a CNBC interview to what pace the Fed should take in increasing benchmark rates. Instead, he said policymakers should be measured in their approach and watch how what they do impacts conditions.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6715 will signal a resumption of the downtrend. A move through .6902 will change the main trend to up.

The main range is .6529 to .7034. Its retracement zone is .6782 to .6722. After consolidating inside this zone for a couple of days, the NZD/USD appears to be ready to breakout above it.

The minor range is .6902 to .6715. Its pivot at .6809 is the first target.

The short-term range is .7034 to .6715. Its 50% level at .6875 is the second target.

Daily Swing Chart Technical Forecast

The direction of the NZD/USD into the close on Wednesday is likely to be determined by trader reaction to .6782.

Bullish Scenario

A sustained move over .6782 will indicate the presence of buyers. The first upside target is the pivot at .6809. Taking out this level could trigger an acceleration to the upside with the next target area .6875 to .6902.

Bearish Scenario

A sustained move under .6781 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the Fibonacci level at .6722.

Taking out .6722 should lead to a quick test of the minor bottom at .6715. This is a potential trigger point for an acceleration to the downside with .6631 the next major target.