Will a Greater Than Expected Inflation Report Lead the RBNZ To Continue Tightening Rates?
Consumer prices in New Zealand are expected to rise 0.4 percent for the second quarter after climbing 0.4 percent the quarter prior. The decline in crude oil prices during the three months through March might have pushed fuel and transport costs lower, while the strength in the Kiwi is likely to have put downward pressure on import prices. Indeed, an inflation reading greater than economists’ expectations may fuel expectations for an increase in the regions key overnight lending rate. As of late, market participants are weighing in an eighty eight percent chance that the Reserve Bank of New Zealand will hike rates twenty five basis points at its next rate decision on July 28th. Expectations for an increase in borrowing costs comes on the back of an advancement in employment, while economic activity expanded for the fourth straight quarter during the three months through March. Despite subdued prices at the moment, traders should not overlook the decline in unemployment which suggests a pickup in wage claims, and in turn, may stoke inflation. Meanwhile, retail sales in May rose 0.4 percent after falling 0.3 percent the previous month as consumers regain confidence. All in all, a release in consumer prices which surpasses expectations may validate our bullish NZD/USD technical outlook.
NZD/USD: Risk appetite looks to have regained ground as the pair slid back above the 200-day SMA which has held as a line of resistance since May 17th, while failing to break above this level at the end of June. As price action continues its northern journey, we do not rule out a test of support towards 0.710. At the same time, it is noteworthy that the recent 20-day SMA crossover above the 100-day SMA is indicative of further upside potential. However, traders should caution a downside correction as daily studies are nearing oversold territory.
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Written by Michael Wright, Daily FX Research
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical's, Weekly Spotlight, and Forex Trading Weekly Forecast
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