NZD/USD consolidates and awaits critical NZ CPI

• NZD/USD has moved lower ahead of the critical domestic data event on Friday. 
• US dollar bulls step back in despite dovish Powell.

At the time of writing, NZD/USD is trading lower by some 0.66% in early Asia, downtrodden by a firmer US dollar. 

The kiwi fell from the fresh daily highs of 0.7044 to a low of 0.6964 on the day as traders get set for the New Zealand Consumer Price Index data for the start of the Asian day. 

Meanwhile, the US Federal Reserve's Chairman, Jerome Powell, continued his testimony to Congress on Thursday following Wednesday dovish rhetoric which sank the greenback. 

On Thursday, the chairman maintained the line the inflation was likely transitory. However, the chairman's stance came in contrast to that of his colleague, St. Louis Fed Chief Bullard's. 

Bullard argued that the Fed has already reached its goal of “substantial further progress” on inflation and employment, and needs to reduce stimulus. 

Hos comments, coupled with the number of Americans filing new claims for unemployment benefits dropping last week to a 16-month low helped the US dollar to continue to recover from yesterday's lows. 

Additionally, spiking coronavirus cases kept the US dollar supported in comparison to the likes of the kiwi as Asia battles with the variants and subsequent lockdowns. 

Looking ahead today, the big event in NZ is Q2 CPI data.

Traders will also be looking out for the Reserve Bank of New Zealand’s sectoral factor core inflation model results due later in the new Zealand afternoon. 

'' We think that prices rose 3.0% y/y (1.5% previously), versus the market expectation of 2.7%, and RBNZ forecast of 2.6% in the May MPS,'' analysts at ANZ bank said.

''This is a crucial data point for the RBNZ – it will be the first time that annual inflation has exceeded 2% since before COVID. But more important than the headline number will be the details of the release,'' the analysts added.

''A strong showing from non-tradables and core measures of inflation would reaffirm our view that underlying inflation pressures are building, and that higher interest rates are needed ASAP.

As the RBNZ now acknowledges, the balance of risks has flipped towards possible overshooting of the inflation and employment targets.''