NZD/USD DROPS TO NEAR 0.6200 AS USD INDEX REBOUNDS AHEAD OF US INFLATION

The NZD/USD pair has extended its correction below 0.6220 in the Asian session. The Kiwi asset is expected to display sheer volatility ahead as investors are getting anxious ahead of the release of the United States Consumer Price Index (CPI) data.

After a surprise jump in the number of payrolls generated in the US economy in the month of February and a less-than-anticipated jump in the Average Earnings, an increase in inflationary pressures cannot be ruled out. However, the consensus shows a decline in the headline CPI to 6.0% from the former release of 6.4%. And, the core inflation that strips off oil and food prices is expected to soften marginally to 5.5% vs. the prior release of 5.6%.

The US Dollar Index (DXY) has shown a recovery to near 103.80, which seems like a pullback move after a vertical sell-off. Economists at MUFG Bank believe that only a big surprise upside in the US inflation could lift the US Dollar ahead. S&P500 futures are showing a decent recovery as investors are ignoring the volatility linked to Silicon Valley Bank (SVB) collapse. Also, the demand for US government bonds has dropped, which has led to a rebound in the 10-year US Treasury yields above 3.55%.

On the New Zealand Dollar front, investors are awaiting the release of the Gross Domestic Product (GDP) (Q4). According to the estimates, the NZ economy has contracted by 0.2% vs. a growth of 2.0% witnessed in the third quarter. The annual GDP (Q4) has expanded by 3.3%, lower than the prior expansion of 6.4%.