The New Zealand Dollar (NZD) continues its upward trend against the US Dollar (USD) on Wednesday, supported by positive risk sentiment and a weaker Greenback. The ongoing optimism in the risk sentiment has kept the USD under pressure, benefiting the NZD/USD pair. Additionally, signs of increased demand from China, New Zealand’s largest trading partner, have further bolstered the Kiwi.
However, geopolitical tensions in the Middle East could potentially limit the NZD’s upside. All eyes are now on the Reserve Bank of New Zealand (RBNZ) interest rate decision scheduled for Wednesday at 02:00 GMT. The market expects the RBNZ to maintain its Official Cash Rate (OCR) at 5.50% during its August meeting. The decision is anticipated to be a close call between holding rates steady and implementing a cut, given the decreasing inflation expectations. Traders will closely monitor the press conference, with dovish remarks from RBNZ Governor Adrian Orr likely to weigh on the Kiwi. Additionally, the US July Consumer Price Index (CPI) release later in the day will be a key focus.
Market Insights: NZD Strengthens Ahead of RBNZ Rate Decision
- Swap markets indicate a 70% probability of a 25 basis points rate cut by the RBNZ to 5.25%. Expectations for further easing in 2021 and 2025 are also priced in.
- The US Producer Price Index (PPI) for final demand in July fell short of market expectations, showing a 2.2% year-on-year increase and a 0.1% month-on-month growth.
- The core PPI figures were also below estimates, with a 2.4% annual rise and no change on a monthly basis.
- Investors anticipate rate cuts in September, November, and December, with the possibility of a 50 basis points reduction in September depending on data.
- Atlanta Fed President Raphael Bostic expressed confidence in achieving the Fed’s 2% inflation target but emphasized the need for more evidence before supporting rate cuts.
Technical Analysis: NZD/USD Bullish Bias Continues
The NZD/USD pair maintains its bullish momentum, supported by a break above the key 100-day Exponential Moving Average (EMA) and a breach of the descending trendline on the daily chart. The 14-day Relative Strength Index (RSI) suggests ongoing upside momentum, with the 0.6090-0.6100 level serving as immediate resistance. A clear break above this level could target the July 8 high at 0.6154. On the downside, 0.6050 acts as initial support, followed by 0.5977.
Overall, the NZD’s strength against the USD is driven by market sentiment, RBNZ’s upcoming decision, and US economic data. Traders should closely monitor these factors to assess the NZD’s future movements and potential trading opportunities.