New Zealand Dollar Sinks on US CPI as Retail Traders Sell NZD/USD, More Pain Ahead?

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

• New Zealand Dollar sinks in worst day since March 2020
• The US CPI report beat could result in a extra hawkish Fed
• Retail merchants increase NZD/USD lengthy bets, a bearish sign

The New Zealand Dollar plunged in opposition to the US Dollar on Tuesday as NZD/USD sank 2.22%. That was the worst single-day efficiency since March 2020. What prompted such a dramatic reversal after a couple of days of cautious good points? It was August’s US CPI report. The headline charge of inflation clocked in at 8.3% y/y versus 8.1% estimated, a slower-than-expected weakening from 8.5% recorded in July.

More worryingly for the Federal Reserve, the stickier core gauge unexpectedly strengthened to six.3% y/y from 5.9% prior. A 6.1% end result was estimated by economists. The divergence between headline and core gauge may very well be defined by falling power costs in latest months. Meanwhile, shelter costs accelerated amid hovering rents.

All that is translating right into a doubtlessly extra aggressive Fed. According to the CME FedWatch Tool, the chances of a 75-basis level charge hike this month stand round 66%. A full 100-basis level surge is seen with a close to 33% chance. This continues to make the Fed probably the most aggressively hawkish developed central financial institution, pressuring the New Zealand Dollar because the US Dollar surged.

New Zealand Dollar Sentiment Outlook – Bearish

How are retail merchants reacting in NZD/USD? According to IG Client Sentiment (IGCS), they boosted upside publicity and dramatically pared again draw back bets. IGCS can at instances perform as a contrarian indicator. If this development in positioning continues, extra ache is likely to be in retailer for NZD/USD. For a deeper dive into how you should utilize this instrument, try the webinar recording above!

The IGCS gauge reveals that about 75% of retail merchants are net-long NZD/USD. Since most merchants are biased to the upside, this implies that costs could proceed falling. This is as brief bets decreased by 20.77% and 25.36% in comparison with yesterday and final week, respectively. With that in thoughts, the mix of present and up to date adjustments in IGCS is providing a stronger bearish contrarian buying and selling bias.

NZD/USD Daily Chart

NZD/USD closed at its lowest since May 2020 on Tuesday, additionally taking out the September seventh low at 0.5997. That has opened the door to extending the dominant downtrend. The pair additionally pivoted decrease proper on the 20-day Simple Moving Average, which appears to be key resistance. Back in August, the pair turned decrease on the 100-day equal. Immediate assist seems to be the 100% Fibonacci extension at 0.5953. Extending losses would expose the 123.6% degree at 0.5832.

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*IG Client Sentiment Charts and Positioning Data Used from September 13th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the feedback part beneath or @ddubrovskyFX on Twitter