NEW ZEALAND DOLLAR TALKING POINTS

NZD/USD extends the rebound from a fresh yearly low (0.6737) to pull the Relative Strength Index (RSI) out of oversold territory, but fresh data prints coming out of the US may drag on the exchange rate as inflation is expected to pick up for the third consecutive month.

It remains to be seen if the update to the US Consumer Price Index (CPI) will influence NZD/USD as the headline reading is expected to increase to 6.8% from 6.2% per annum in October, which would mark the highest reading since December 1981.

The core CPI is anticipated to show a similar dynamic as the index is seen climbing to 4.9% from 4.6% during the same period, and signs of stronger inflation may push the Federal Open Market Committee (FOMC) to adjust the forward guidance for monetary policy as Chairman Jerome Powell strikes a hawkish tone in front of US lawmakers.

In turn, the FOMC may show a greater willingness to normalize monetary policy sooner rather than later as the central bank is slated to update the Summary of Economic Projections (SEP) as its last meeting for 2021, and the fresh projections may keep NZD/USD in a bearish trend if Chairman Powell and Co. see a steeper path for the Fed funds rate.

Until then, NZD/USD may approach the December high (0.6868) as the RSI indicates a textbook buy signal, but the tilt in retail sentiment looks poised to persist even though the exchange rate extends the rebound from the yearly low (0.6737).