NZD/USD whipsaws around 0.6370 despite firmer China CPI, focus on US inflation

• NZD/USD struggles for clear directions after two-day downtrend.
• China CPI matches upbeat expectations; PPI drops below forecasts in December.
• New Zealand Building Permits rallied in November and favored bulls ahead of key data.
• Hopes of softer US inflation rekindles policy pivot talks, but Fed hawks resist stepping back.

NZD/USD dribbles around 0.6360-70 as bulls and bears jostle ahead of the critical US inflation data. Adding strength to the Kiwi pair traders' indecision are the recent mixed signs from China’s Consumer Price Index (CPI) and Producer Price Index (PPI) data for December, which flashed early Thursday.

China’s headline CPI grew 1.8% YoY versus 1.8% expected and 1.6% prior, whereas the Producer Price Index (PPI) marked -0.7% yearly figures compared to -1.3% previous readings and -0.1% market forecasts. Earlier in the day, New Zealand’s Building Permits for November rallied 7% MoM versus -0.1% market forecasts and -10.7% prior slump.

It’s worth noting that the Fed policymakers’ hesitance in praising the market’s dovish bias contrasts with the cautious mood ahead of the key US inflation data to challenge the NZD/USD traders. However, China-linked optimism and upbeat housing figures at home put a floor under the prices.

Federal Reserve Bank of Boston President Susan Collins backed the smaller rate increases while stating that she leans at this stage to a 25 bps hike. The policy, however, also mentioned that it is very data-dependent. Alternatively, China’s total reopening and early signals of heavy holiday shopping join the chatters that the People’s Bank of China (PBOC) will adhere to rate cuts in 2023 to spread the Beijing-inspired optimism.

Against this backdrop, US equities were on the front foot, and yields were down while the S&P 500 Futures and the US 10-year Treasury bond yields remained indecisive by the press time.

Given the market’s indecision ahead of the US CPI data, the NZD/USD traders may witness further lackluster moves before the inflation release. That said, expectations of softer US inflation keep traders on the edge as the US data has a history of disappointing market forecasts, especially when they’re too important.

Also read: US December CPI Preview: EUR/USD and USD/JPY are pairs to watch

Technical analysis

NZD/USD buyers remain hopeful as the pair defends Friday’s upside break of the one-month-old descending resistance line, now support, and the 200-SMA, respectively, around 0.6295 and 0.6335. However, a convergence of the weekly descending trend line joins the 61.8% Fibonacci retracement level of the pair’s December-January downturn, around 0.6390, which appears a tough nut to crack for the bulls.