NZD/USD fell slightly in choppy trading on Tuesday. It peaked in Asia and early Europe, dipped to about 0.5935 mid-session, then recovered into the New York close.
Attention in New Zealand turns to Wednesday’s RBNZ Q2 inflation expectations survey. Last quarter’s two-year reading was 2.37% and the one-year reading was 2.59%.
New Zealand Inflation Focus
New Zealand Q1 CPI was 3.1% year on year, above the RBNZ’s 1% to 3% target band. The Strait of Hormuz was reported as effectively closed, and Thursday’s BusinessNZ Performance of Manufacturing Index for April is also due.
In the US, headline CPI rose to 3.8% year on year in April versus a 3.7% consensus, and core CPI was 2.8% year on year. Energy costs increased 17.9% year on year, the fastest since 2022.
On the five-minute chart, the pair traded near 0.5950, below the day’s open at 0.5967. Stochastic RSI was near 17, and 0.5967 was flagged as near-term resistance.
On the daily chart, NZD/USD was around 0.5951, above the 50-day EMA at 0.5881 and the 200-day EMA at 0.5866. Daily Stochastic RSI was near 76, with support noted at 0.5881 and 0.5866.
Options Strategies For Event Risk
Given the indecision in NZD/USD, we should anticipate heightened volatility. The recent surge in US headline CPI to 3.8% is concerning, echoing the persistent inflation pressures we saw back in 2024 when the annual rate was also stubbornly above 3%. This ongoing inflation, fueled by the energy shock from the Hormuz situation, makes long-term directional bets risky.
The upcoming RBNZ inflation expectations survey is a critical checkpoint for the pair. We remember how New Zealand’s Q1 2024 CPI was a hot 4.0%, so the current 3.1% shows some progress, but it remains well outside the RBNZ’s target band. A higher-than-expected inflation reading could force the RBNZ to maintain its hawkish stance, providing a floor for the Kiwi dollar against other currencies.
The primary driver of risk in the coming days is geopolitical, centered on the US-Iran standoff and Thursday’s Trump-Xi meeting. The VIX Index, a measure of expected market volatility, has already climbed to its highest level in over a year, currently sitting just over 19.5. This environment suggests that buying options, such as a straddle or strangle on NZD/USD, could be a prudent way to trade the binary outcome of the Beijing meeting without committing to a direction.
From a tactical perspective, the failure to reclaim the 0.5967 pivot point suggests underlying weakness. We could consider buying NZD put options with a strike price below the 50-day EMA at 0.5881, offering a defined-risk way to profit if geopolitical news turns sour. This would protect against a sharp drop while limiting our potential loss to the premium paid for the options.
Alternatively, if we believe the pair will remain range-bound despite the news, the elevated volatility makes selling premium attractive. A strategy like an iron condor, selling both an out-of-the-money call spread and put spread, would profit if NZD/USD stays between our chosen strikes through the event risk. This capitalizes on the market’s current uncertainty and the eventual decay of option premium.
