The NZD/USD exchange rate will be in the spotlight this week as the Reserve Bank of New Zealand (RBNZ) delivers its interest rate decision and the US publishes its consumer inflation data. The pair rose to a high of 0.6152 on Monday, its highest point since June 14th. It has risen by over 1.55% from its lowest point in June.
RBNZ interest rate decision
The NZD to USD exchange will be in the spotlight as the RBNZ makes its June interest rate decision on Wednesday. Economists polled by Reuters expect the central bank will leave interest rates unchanged at 5.50%, where they have remained in the past few months.
The central bank is in a balancing act as it fights inflation at a time when inflation has remained above its 2% target in the past few months.
Recent data showed that the headline Consumer Price Index (CPI) dropped to 4.7% in the first quarter from a peak of 7.3% after the pandemic. This figure is substantially higher than the RBNZ’s target of 2.0% and that of its peer countries like Australia and the United Kingdom.
At the same time, New Zealand’s economy is not doing well, with the government cautioning that the slowdown will continue in the foreseeable future. Higher interest rates have helped to curb spending.
Therefore, there is a likelihood that the RBNZ will point to interest rate cuts in the coming months. The key challenge is that the bank will deliver its decision without the latest quarterly inflation data.
The other alternative is where the central bank maintains a hawkish tone like the Reserve Bank of Australia (RBA). In its recent decision, the RBA said that it would consider hiking interest rates if inflation remains steady.
Federal Reserve rate cuts
The NZD/USD pair has also risen as hopes rise that the Federal Reserve will start cutting interest rates soon. That is after data published last week showed that the economy remained under pressure.
Two reports by the Institute of Supply Management (ISM) showed that the manufacturing and services PMIs dropped below the expansion zone of 50 in June. In most cases, a PMI report below 50 is a sign that a sector is contracting.
The US also published mixed jobs numbers. According to the Bureau of Labor Statistics (BLS) showed that the economy added 202k jobs in June while the unemployment rate rose to 4.1% in June.
In the aftermath, some analysts predicted that the Fed will start cutting rates as soon as in September. Analysts at Citigroup believe that the bank will have a bonanza of rate cuts starting from September.
The same is true with other analysts at ING, who expect that the Fed will start cutting interest rates in September. The key data to watch will be the upcoming consumer inflation numbers on Thursday.
NZD/USD technical analysis
The four-chart shows that the NZD to USD exchange rate has risen in the past few days. It has risen from below 0.6050 on July 2nd to 0.6147. It has now moved slightly above the 23.6% retracement point.
The pair has also remained slightly above the 25-period and 50-period Exponential Moving Averages (EMA). Similarly, the Relative Strength Index (RSI) and the MACD have pointed upwards.
Therefore, the NZD/USD pair will likely continue rising as buyers target the key resistance point at 0.6200. This is in line with the forecast by analysts at ING Bank who noted:
“We expect NZD/USD to break above the 0.6200 June highs and potentially rally as far as 0.6300 this summer on the back of the aforementioned factors.”
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