Breaking: New Zealand CPI sends Kiwi nearly 50 pips higher

• NZD/USD rallied over 50 pips on upbeat NZ data.

• New Zealand Q2 CPI rose past expectations on YoY and QoQ both.

• Market mood remains dismal amid covid, reflation concerns, weighing on Antipodeans.

• US consumer-centric data, risk catalysts become the key to follow.

NZD/USD stays firmer around 0.7000, following a spike to 0.7037, amid Fridays Asian session. The kiwi pair recently reacted to the surprisingly strong New Zealand (NZ) Consumer Price Index (CPI) for the second quarter (Q2).

The NZ CPI for Q2 rose past the 2.8% YoY forecast and 2.6% RBNZexpectations to 3.3% whereas the monthly print broke above 0.8% market consensus with 1.3% prints. Earlier in the day, Business NZ PMI rallied past 55.8 expected and 58.6 prior to 60.7 for June. The noted figures can help RBNZ to start inflating the rate once they're confident over tapering moves, to begin late July, which in turn pleased NZD/USD bulls on data release.

Contrary to the key statistics, downbeat trading sentiment tests the NZD/USD bulls, as safe-haven demand puts a bid under the US dollar. Among the negatives, the coronavirus (COVID-19) woes are the key concern for the global market, though not much for Auckland, whereas the fear of the Feds monetary policy adjustments comes in second.

In addition to the original virus, the faster-spreading strains and slower vaccinations have posed a serious downside risk to the economic recovery from the pandemics first wave. The issue has become grave in Asia-Pacific as World Bank Chief David Malpass said, per Reuters, “The East Asia and Pacific region, excluding China, is expected to grow 4% this year,” versus 4.4% forecasted in March.

On the other hand, US Fed Chair Jerome Powell reiterated less urgency for policy adjustments but St. Louis President James Bullard contrasted with the push for tapering. Also, mixed manufacturing figures from Philadelphia and New York, coupled with weaker-than-prior Jobless Claims, have an inflation component arguing the Fed policymakers rejection to act.

It's worth noting that US President Joe Biden's optimsim over infrastructure deal and Reuters' piece suggesting further sanctions on Chiense diplomats by the US add to the market's risk aversion.

Hence, the resulted in confusion among the trades back the risk-off mood and weigh on S&P 500 Futures by the press time, following Wall Street benchmarks. It‘s worth noting that the US 10-year Treasury yields also portrayed cautious markets by declining 5.5 basis points (bps) to 1.30% by the end of Thursday’s North American session.

Having witnessed the initial reaction to the key New Zealand data, NZD/USD traders may wait for fresh clues to extend the run-up. As a result, US Retail Sales and the preliminary readings of the Michigan Consumer Sentiment Index, expected 0.4% for June and 86.5 for July respectively, will be crucial to follow. However, the hawkish RBNZ and strong inflation data seem to have already put the kiwi pair on the bulls radar.

Inability to keep RBNZ-led gains beyond 200-DMA, around 0.7080 suggests the NZD/USD pairs underlying momentum weakness. However, bears need a clear break of 0.6920 to push back and recovery hopes.