• The New Zealand dollar remains on the defensive, losing 1.69%.
• US hot inflation, and the Federal Reserve meeting, weighed on the market mood and boosted the greenback.
• Tuesday’s US Producer Price Index for May might attract investors’ attention as the Fed monetary policy meeting looms.

The NZD/USD nosedives near 90 pips in a risk-aversion trading day courtesy of May’s US Consumer Price Index, hitting 8.6%, sparking fears that the US Federal Reserve would tight more aggressively than they had, which would drag the US into a recession. At 0.6251, the NZD/USD is trading at fresh four-week lows as sellers begin to target the YTD lows at 0.6216.

Dismal sentiment dominates the financial markets

Dampened market mood keeps investors seeking a flight to safe-haven assets. Wall Street is going into a blood bath, losing between 2.66% and 4.84%. On Tuesday, the US Federal Reserve will begin its two-day monetary policy meeting and is widely expected to hike rates by at least 0.50%. That, alongside the above-mentioned and the re-emergence of a China’s coronavirus outbreak, keeps investors uneasy.

Just crossing the wires, the WSJ reported a news piece that said, “A string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week.”

Market’s reaction

The NZD/USD dipped from 0.6280s to 0.6240s in a matter of 15 minutes. In the meantime, the US Dollar Index reacted upwards and jumped from 104.9325 towards 105.285, at new 2-decade highs, up by 1.03%. The US 10-year Treasury yield jumped to fresh 11-year-highs and is closing to the February 2011 highs at around 3.737%.

Later in the Asian session, the New Zealand calendar will reveal May’s Food Inflation. The US economic docket will unveil the Producer Price Index (PPI) for May, which is expected to rise to 10.9% YoY, lower than April’s 11%. However, due to the jump in the CPI, it could smash the expectations, opening the door for a 75 bps rate hike by the Fed.

Key Technical Levels