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NZD/USD Overview Ahead of The Reserve Bank of New Zealand Official Cash Rate

Reserve Bank of New Zealand Consumer Price Index

New Zealand Dollar traders eagerly anticipate the Reserve Bank of New Zealand’s Official Cash Rate (OCR), a critical event that can significantly impact the market. Over the past two years, inflation in New Zealand has mirrored global trends. The CPI Y/Y, encompassing all items, has dropped from its 2022 peak of 7.30% and currently rests at 4.00%. Despite this decline, New Zealand’s CPI remains relatively high compared to other global economies, indicating a unique economic landscape. Traders will also pay attention to domestic (non-tradeable) inflation, which measures goods and services that do not face foreign competition. However, the inputs of these goods and services can be influenced by foreign competition.

According to Bloomberg’s World Interest Rate Projection Model, the probability of an RBNZ rate cut for the May 22nd meeting stands at 1%; however, it increases as we approach year-end as more traders anticipate the cuts later in the year. The RBNZ Shadow Board members recommended that RBNZ keep the Official cash rate OCR at 5.5% and cut rates in 2025.

Weekly Chart Technical Analysis

  • NZD has been trading within a widening formation as of January 2023, marked by red lines on the weekly chart, and is approaching the upper pattern borderline.
  • A confluence of resistance lies within the range of 0.6170 – 0.6260, represented by the upper channel borderline, the standard monthly R2 and R3, and the annual pivot point at 0.6210.
  • A potential inverted head and shoulder pattern is currently under formation, and its neckline aligns with the widening pattern of the upper borderline.
  • Negative divergence between price action and tick volume; however, volume bars rose for the same duration. Tick volume does not represent real volume; however, it behaves similarly to standard volume indicators in certain cases.
  • MACD line crossed above its signal line and aligned with price action.
  • Price action broke and closed above multiple short and intermediate moving averages, the EMA9, SMA9, and the SMA20.

COT Report

  • The latest COT report for the week ending on May 17th, 2024 (Includes data up to the end of day Tuesday, May 14th, 2024) shows that Large Speculator and Commercials positioning levels are in line with price action after remaining at their all-time extremes for few weeks, a sharp change in positioning towards long for large speculators and the opposite for commercials.
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