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Australian Dollar Outlook: AUD/NZD May Fall After New Zealand CPI Surprise

Australian Dollar Outlook: AUD/NZD May Fall After New Zealand CPI Surprise

Daniel Dubrovsky, Strategist

Australian Dollar, New Zealand, AUD/NZD, Inflation – Analyst Pick

  • Australian Dollar may be at risk against New Zealand peer
  • Firm NZ inflation data may fuel a rise in local bond yields
  • AUD/NZD could confirm a break under key rising trendline

The Australian Dollar may be at risk against the New Zealand Dollar in the short-term. This followed an unexpectedly higher inflation report out of New Zealand as CPI clocked in at 1.4% y/y and 0.5% q/q in the fourth quarter. This is compared to economists’ estimates of 1.1% and 0.2% respectively.

New Zealand’s inflation print caught investors off-guard as the NZD saw a boost against its major counterparts. Financial institutions also showed signs of surprise as Westpac dropped calls for the Reserve Bank of New Zealand to cut its benchmark lending rate further this year.

The RBNZ expects inflation to fall to the lower half of its 1-3% target range in 2021, but the CPI print has poured some cold water on this. Coupled with a better-than-expected economic recovery from last year’s coronavirus outbreak, dovish monetary policy expectations may cool going forward.

For AUD/NZD specifically, which can at times behave as a ‘risk-neutral’ currency pair, rising government bond yields from New Zealand compared to Australia helped nudge the pair lower over the past 24 hours. If this trend continues in the near-term, AUD/NZD could see some selling pressure ahead.

AUD/NZD Technical Analysis

Taking a look at a daily chart, AUD/NZD seems to have broken under a short-term rising trendline from early December. While unconfirmed, a further downside close could open the door to a reversal in the short run. That may send the pair towards the 50-day Simple Moving Average for support. Subsequently falling beyond that exposes the December 1st low. Otherwise, uptrend resumption entails a push above the January 19th high.

AUD/NZD – Daily Chart

Australian Dollar Outlook: AUD/NZD May Fall After New Zealand CPI Surprise

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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