NZD/USD gains ground and threatens the 20-day SMA, upside limited

NZD/USD is seeing 0.30% gains and rose to 0.5915.
Inflation accelerated in August, driven by higher gasoline prices.
US yields initially soared to two-week highs and then consolidated.
Fed tightening expectations are still high.

In Wednesday’s session, the NZD/USD increased towards 0.5915, near the 20-day SMA of 0.5922. That being said, the upside potential during the session is limited by the US Dollar holding its foot after the release of hot inflation readings from the US.

In August, the US saw a surge in inflation, with the Consumer Price Index (CPI) increasing by 3.7% YoY, up from 3.2% in July, according to the US Bureau of Labor Statistics (BLS). This exceeded market expectations of 3.6%, while the monthly figure matched forecasts at 0.6%. The core annual reading eased to 4.3% from July’s 4.7%, matching expectations.

The initial reaction was a spike of the US 2-year Treasury yield to 5.08%, it highest in over two weeks, and then consolidated near 5%. The 5 and 10-year rates saw similar movements and are consolidating at 4.41% and 4.28%. In line with that, yields remain high as, according to the CME FedWatch tool, markets still price in high odds of one last hike in November or December by the Federal Reserve (Fed).

Attention now shifts to Thursday’s Producer Price Index (PPI) figures from August from the US, which will guide investors in modelling their expectations for the next Fed meetings.

NZD/USD Levels to watch

The NZD/USD daily chart analysis points to a bearish sentiment for the short term. The Relative Strength Index (RSI) is situated below its midline while the Moving Average Convergence Divergence (MACD) prints flat green bars, signifying that despite gaining some traction, the bull’s momentum is still weak. Additionally, the pair is below the 20,100 and 200-day Simple Moving Averages (SMAs), indicating that the bears are still in command on the broader picture.

Supports: 0.5900, 0.5890, 0.5850.
Resistances: 0.5922 (20-day SMA), 0.5930, 0.5960.