NZD/USD bears testing 0.7000 handle post US-data

• The ISM's index of the prices paid for April accelerated to 79.3 boosting the US Dollar on inflation reemerging on the horizon.
• As inflation gets higher investors expect the Federal Reserve to confirm a rate hike in June at its next FOMC meeting on Wednesday at 18:00 GMT. 

The NZD/USD is trading just below the 0.7200 level down 0.55% on Tuesday as investors anticipate that higher inflation will push the Federal Reserve to gradually hike rates.

The kiwi bearish trend is extending past the 0.7000 handle following the trend in most USD-related pairs. The antipodean pair is trading at 4-month lows on the back of strong US dollar demand. 

Freshly released in the North American session, the US Markit Manufacturing Purchasing Managers Index (PMI) matched analysts expectations at 56.5 in April while the Institute for Supply Management (ISM) version decelerated to 57.3 against 58.3 market consensus. However, investors focused on the (ISM) Price Paid for April which accelerated to 79.3 beating analysts expectations of 78 in April. It is worth mentioning that raw materials prices are higher for the 26th consecutive month. This bodes well for inflation and investors are adding to their USD long positions as they speculate that the Fed will confirm a rate hike in June at the next FOMC meeting on Wednesday.

Later on Tuesday in New Zealand, Unemployment Rate, Employment Change, Participation rate and the Labour Cost Index data is set to be released at 22:45 GMT. A stronger than expected reading might give a small boost to the NZD but it is unlikely that it will be the catalyst for a reversal of the current NZD/USD bear trend. 

On the broader picture, the US Dollar Index (DXY) which gauge the greenback relative to a basket of currencies is trading close to 4-month highs amid expectations of three to four rate hikes in 2018 and rising US Treasury yields boosting USD demand. DXY is close to 90.54 at the time of writing.

NZD/USD daily chart 

The trend is bearish and immediate resistance is seen at the 0.7000 handle and then at 0.6954 swing low. To the upside, resistances are priced in at 0.7039, Friday’s low and at the 0.7100 handle.