The New Zealand to USD (NZD/USD) exchange rate rose for two consecutive weeks even as speculators and hedge funds raised their bearish bets on the Kiwi. It rose to the important psychological level at 0.600, up from this month’s low of 0.5850.
RBNZ interest rate ahead
The NZD/USD pair continued rising as hedge funds maintained their bearish bets on the New Zealand dollar. A report by the Commodity Futures Trading Commission (CFTC) showed that speculators, who include traders and hedge funds, had a net bearish positioning of minus 16.8k for the kiwi. It was the second consecutive week that this happened.
This positioning happened as traders waited for the important Reserve Bank of New Zealand (RBNZ) interest rate decision scheduled on Wednesday.
The meeting comes at a time when the country’s inflation is moving downwards and as the country is emerging from a technical recession. Data by Statistics New Zealand showed that the headline Consumer Price Index (CPI) retreated to 3.3% in the second quarter from 4.0% in Q1.
That decline was bigger than the median estimate of 3.5% and was a sign that the bank’s work to fight inflation was working. The country’s CPI peaked at 7.3% in 2023 and is moving towards the RBNZ’s target of 2.0%. Notably, the CPI is in the same range as that in the United States, which stood at 3.0% in June.
At the same time, the recent data showed that New Zealand’s economy moved out of a technical recession in Q1. According to the statistics agency, the economy expanded by 0.2% in Q1 from Q4’23 and by 0.3% from the same period in 2023.
Despite the improvement, economists believe that the economy will remain under pressure for a while. Therefore, the current state of the economy could push the New Zealand central bank to embrace a dovish tone in this meeting.
Analysts expect it to maintain interest rates unchanged at 5.50% and then point to a rate cut later this year.
Besides, other global central banks have started slashing interest rates as inflation falls. Some of the most notable ones are the Bank of England (BoE), the European Central Bank (ECB), and the Swiss National Bank (SNB).
The other important NZD/USD news to watch will be the upcoming electronic card retail sales data on Thursday. Economists expect the data to show that these sales remained under pressure in July after declining by 4.9% in the previous month.
US inflation and retail sales data
Meanwhile, the NZD/USD exchange rate will react to the upcoming US inflation and retail sales data scheduled on Wednesday and Thursday, respectively.
Economists believe that the country’s inflation moderated slightly in July as energy prices dropped.
The consensus view is that the headline CPI remained unchanged at 3.0% on a year-on-year in July. Core inflation, which excludes the volatile food and energy products, is expected to move from minus 3.3% in June to 3.2% in July.
If these numbers are correct, they will mean that inflation is struggling to get to the Federal Reserve’s 2.0% target. This trend is mostly attributed to the relatively higher service prices.
The US will also release the retail sales data. Economists expect the report to reveal that the core retail sales softened from 0.4% in June to 0.1% in July while the headline sales rose from 0.0% in June to 0.4% in July.
Retail sales are important numbers for the US economy because consumer consumption is the biggest part. Higher retail sales could reduce the ongoing fear that the US is heading for a hard landing.
The other important data to watch will be the country’s initial and continuing jobless claims data. Economists expect the report to show that the number of jobless claims rose by 235k jobs last week.
The US will also release the latest manufacturing and industrial production data, which will also show whether the US economy was growing.
NZD/USD technical analysis
NZDUSD chart by TradingView
The weekly chart shows that the NZD to USD exchange rate has risen in the past two consecutive weeks. This rebound started after the pair formed a strong support level at 0.5850, its lowest point in July.
It has now moved back into the symmetrical triangle pattern it has been forming in the past few months. This triangle is nearing the confluence level, which is always an indicator that it could form a bullish or bearish breakout.
The pair has also dropped slightly below the 25-week and 50-week Exponential Moving Averages (EMA). Therefore, the pair’s outlook is neutral with a bullish bias because of the divergence of the RBNZ and Federal Reserve on interest rates. If this happens, the key point to watch will be at 0.700. A drop below the support at 0.5950 will point to more downside.
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