New Zealand Dollar sinks on US CPI as retailers sell NZD/USD, further pain?

New Zealand Dollar, NZD/USD, US CPI, Technical Analysis, Retail Trader Positioning – Sentiment Weekly

• New Zealand dollar dips for worst day since March 2020
• Fed may be more aggressive than US CPI report beat
• Retail traders boost long bets on NZD/USD, a bearish sign

The New Zealand dollar fell against the US dollar on Tuesday as the NZD/USD sank 2.22%. This was the worst single-day performance since March 2020. What was the reason for such a dramatic reversal after a few days of cautious gains? it was US CPI Report for August, The headline rate of inflation weakened at a slower-than-expected 8.3% y/y versus estimated 8.1%, from 8.5% recorded in July.

More worryingly for the Federal Reserve, the stickier core gauge unexpectedly strengthened from 5.9% prior to 6.3% y/y. The result was estimated at 6.1% by economists. The gap between the headline and core gauges can be explained by the drop in energy prices in recent months. Meanwhile, shelter prices shot up amid rising rents.

All of this is potentially turning into a more aggressive Fed. According to the CME Fedwatch tool, the probability of a 75-basis point rate hike this month is around 66%. A full 100-basis point increase is seen with about a 33% probability. This has continued to make the Fed the most aggressively developed central bank, putting pressure on the New Zealand dollar as the US dollar rises.

New Zealand Dollar Sentiment Outlook – Bearish

How are retailers reacting in NZD/USD? According to IG Client Sentiment (IGCS), they have increased upside exposure and dramatically reduced downside bets. IGCS can sometimes act as a contrast indicator. If the trend continues in this situation, there could be more pain for NZD/USD. For an in-depth look at how you can use this tool, check out the webinar recording above!

IGCS gauge Shows that about 75% of retailers are net-long NZD/USD. Since most traders are bullish, this suggests that the price may continue to decline. This is due to a decrease of 20.77% and 25.36% respectively compared to yesterday and last week. With this in mind, the combination of current and recent changes in IGCS is offering a strong bearish opposite trading bias.

NZD/USD Daily Chart

NZD/USD closed at its lowest level since May 2020 on Tuesday, as well as its September 7 low of 0.5997. This has opened the door for an extension of the major downtrend. The pair also moved lower right on the 20-day simple moving average, which appears to be a major resistance. Back in August, the pair went down to the 100-day counterpart. Immediate support appears to be a 100% Fibonacci extension at 0.5953. Expansion of losses would expose the 123.6% level to 0.5832.

Recommended by Daniel Dubrovsky

What do other traders buy/sell bets say about the price trend?

Register for the webinar

Join Now

webinar is over

Chart created in Trading View

*IG client sentiment charts and positioning data used since September 13th report

— Written by Daniel Dubrovsky, strategist For DailyFX.com

To contact Daniel, use the comment section below or @ddubrovskyFX on twitter