Nevertheless, market participants are pricing an 84% chance for another 25bp rate hike in July according to Credit Suisse overnight index swaps as the Reserve Bank of New Zealand lifts the benchmark interest rate off the record-low in the second-half of the year, and the central bank may normalize monetary policy further over the coming months as the rebound in economic activity picks up. Retail spending in New Zealand is forecasted to increase 0.5% in May following the 0.3% contraction in the previous month, and the expansion in economic activity could lead to a second consecutive quarterly rise in consumer prices as the region emerges from the recession. Although, the near-term rebound in the exchange rate appears to have tapered off as price action fails to cross back above the 200-Day SMA at 0.7117, and the NZD/USD will certainly need a much improved outlook for future growth to sustain the rally from the monthly low (0.6794). As a result, if price action holds below the 200-Day SMA over the following week, we could see a short-term correction in the kiwi-dollar, which could lead the pair to fall back below the 100-Day SMA (0.7003) and test the 0.6800 level for psychological support. - DS
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