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Bearish NZD/USD Trend Remains Intact Ahead of New Zealand CPI

Bearish NZD/USD Trend Remains Intact Ahead of New Zealand CPI

2018-07-16 20:00:00
David Song, Strategist
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Trading the News: New Zealand Consumer Price Index (CPI)

A marked pick up in New Zealand’s Consumer Price Index (CPI) may fuel the recent rebound in NZD/USD as it puts pressure on the Reserve Bank of New Zealand (RBNZ) to lift the official cash rate (OCR) off of the record-low.

Image of DailyFX economic calendar

Signs of faster price growth may push the RBNZ to alter the forward-guidance for monetary policy as ‘inflation is expected to gradually rise to our 2 percent annual target,’ and the central bank may drop its dovish tone over the coming months as ‘ongoing spending and investment, by both households and government, is expected to support growth.’

However, a below-forecast CPI print may produce headwinds for the New Zealand dollar as it curbs bets for an RBNZ rate-hike in 2018, and Governor Adrian Orr & Co. may continue to endorse a wait-and-see approach at the next meeting on August 9 as the central bank argues that the ‘best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.Sign up and join DailyFX Currency Analyst David Song LIVE for a broader discussion on current themes and potential trade setups!

Impact New Zealand CPI report has had on NZD/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q

2018

04/18/2018 22:45:00 GMT

1.1%

1.1%

-5

-57

1Q 2018 New Zealand Consumer Price Index (CPI)

NZD/USD 15-Minute Chart

Image of NZDUSD 5-minute chart

New Zealand’s Consumer Price Index (CPI) narrowed to 1.1% per annum from 1.6% during the last three-months of 2017, with the weakness led by a slowdown in prices for discretionary items. A deeper look at the report showed the cost for footwear slipped 1.5%, with prices for clothing down 1.4%, while the cost for household appliances fel1 3.1% in the first-quarter of 2018.

The New Zealand dollar struggled to hold its ground following the lackluster print, with NZD/USD pulling back from the 0.7340 region to close the day at 0.7271. Learn more with the DailyFX Advanced Guide for Trading the News.

NZD/USD Daily Chart

Image of NZDUSD daily chart
  • Broader outlook for NZD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) track the bearish trends from earlier this year, with the pair at risk of giving back the rebound from earlier this month amid the failed attempts to climb back above the former-support zone coming in around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).
  • Need a closing price below the 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion) region to open up the downside targets, with the next area of interest coming in around 0.6600 (23.6% retracement) to 0.6630 (78.6% expansion).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide!

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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

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