Nzdusd falls amid growing US budget deficit and inflation concerns

NZDUSD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	-0.82%	-48.9 Pips
Week to-date	-1.39%	-82.9 Pips
November	-1.48%	-88.1 Pips

Upcoming key events (London Time)

Thu 01:30 PM USD PPI excluding Food and Energy sectors (12-mth)
Thu 08:00 PM USD Federal Reserve Chair Jerome Powell speech
Fri 01:30 PM USD Monthly Retail Trade (1-mth)

What happened lately

The United States economy recently exhibited some contrasting financial metrics. The U.S. Treasury’s Monthly Budget Statement reported a deficit of $257 billion in October, a significant downturn from the $64 billion surplus recorded in September, as noted by the Bureau of the Fiscal Service. This shift from surplus to deficit underscores widening government fiscal imbalances, potentially resulting in increased government borrowing needs, which could pressure interest rates upwards.

Inflation dynamics reveal a mixed picture. The Consumer Price Index (CPI) inflation rate climbed to 2.6% in October compared to 2.4% in September, according to the Bureau of Labor Statistics. This reflects rising consumer prices in general, likely fueled by demand amid economic recovery or constrained supply chains. However, the CPI inflation rate for October remained steady at 0.2% month-over-month, suggesting recent inflationary pressures are predominantly annualized. When excluding volatile sectors like food and energy, the inflation rate remained unchanged at 0.3% month-over-month and 3.3% year-over-year. This stability might reflect underlying core inflation pressures being moderated or balanced by other factors, signaling cautious optimism for controlled inflation going forward.

These economic indicators provided by the Bureau of Labor Statistics denote rising inflation and growing budget deficit challenges in the U.S., which could influence the Federal Reserve’s monetary policy decisions. High inflation rates could prompt a more aggressive tightening stance from the Fed, influencing currency strength and economic forecast adjustments.

These developments in the U.S. economy hold substantial implications for the NZDUSD currency pair. The U.S.’s inflationary trend and budget deficit may lead to fluctuations in interest rate expectations. A potential rise in U.S. interest rates, in response to elevated inflationary pressures, could strengthen the USD due to higher yields attracting investors, thereby exerting downward pressure on the NZDUSD pair. Conversely, if the U.S. deficit concerns lead to fears about fiscal sustainability, it could weaken the USD. Currently, with the NZDUSD having dropped by 0.82% to 0.58834, upcoming U.S. economic announcements, such as the PPI figures and the Federal Reserve Chair Jerome Powell’s speech, remain critical in determining short-term movements and trader sentiment for this currency pair.

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What can we expect from NZDUSD today?

NZDUSD on Wednesday dropped -0.82% to 0.58834. Price is below 9-Day EMA while Stochastic is falling.

Updated daily direction for NZDUSD looks bearish as the pair posted lower in Wednesday trading session.

Looking ahead for the day, immediate support level is at S1 0.58564 with break below could see further selling pressure towards S2 at 0.58294. To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 0.59472 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 0.58748 would indicate selling pressure.

For the week to-date, take note that NZDUSD is bearish as the pair posted lower by -1.39%.

Key levels to watch out:

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