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NZDUSD Rate Forecast: July High on Radar Ahead of New Zealand CPI

NZDUSD Rate Forecast: July High on Radar Ahead of New Zealand CPI

David Song, Strategist

New Zealand Dollar Talking Points

NZDUSD appears to be on track to test the monthly-high (0.6727) despite the weakening outlook for the Asia/Pacific region as the exchange rate extends the series of higher highs and lows from the previous week.

NZDUSD Rate Forecast: July High on Radar Ahead of New Zealand CPI

NZDUSD extends the rebound from the previous week even though China’s Gross Domestic Product (GDP) report shows the growth rate narrowing to 6.2% from 6.4% per annum in the first quarter of 2019 to mark the slowest pace of growth since record keeping began in 1992.

Image of RBNZ interest rate

It remains to be seen if the Reserve Bank of New Zealand (RBNZ) will continue to insulate the economy as the central bank warns that “the global economic outlook has weakened,” and Governor Adrian Orr and Co. may continue to reduce the official cash rate (OCR) over the coming months as officials insist “a lower OCR may be needed over time.”

With that said, the RBNZ may continue to endorse a dovish forward guidance at the next meeting on August 7 as “members agreed that more support from monetary policy was likely to be necessary,” with the broader outlook for NZDUSD still tilted to the downside as the exchange rate snaps the upward trend carried over from 2018.

Image of DailyFX economic calendar

However, updates to New Zealand’s Consumer Price Index (CPI) may keep NZDUSD afloat as the headline reading is anticipated to increase to 1.7% from 1.5% in the first quarter of 2019, and signs of sticky price growth may curb bets for an imminent RBNZ rate cut as “inflation is expected to rise to the 2 percent mid-point of our target range, and employment to remain near its maximum sustainable level.

In turn, the failed attempt to test the 2019-low (0.6482) raises the risk for a larger rebound in NZDUSD as it breaks out of the range-bound price action from May, with the exchange rate extending the series of higher highs and lows from the previous week.

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NZD/USD Rate Daily Chart

Image of nzdusd daily chart
  • NZDUSD may continue to retrace the decline from the April-high (0.6837) as the Fibonacci overlap around 0.6490 (50% expansion) to 0.6520 (100% expansion) offers support, with the topside targets still on the radar as the exchange rate extends the series of higher highs and lows from the previous week.
  • Need a break/close above the former-support zone around 0.6710 (61.8% expansion) to 0.6740 (23.6% expansion) to bring the 0.6780 (100% expansion) to 0.6790 (50% expansion) area on the radar, with the next region of interest coming in around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).
  • Will keep a close eye on the Relative Strength Index (RSI) as it continues to track the upward trend from earlier this year, with a move above 70 raising the risk for a larger advance in the exchange rate as the bullish momentum gathers pace.

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--- Written by David Song, Currency Strategist

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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