On 21 July, Stats NZ reported an acceleration in inflation: the Consumer Price Index rose 1.5% in the second quarter, while the annual inflation rate climbed to 4.1%, its highest level in more than two years and slightly above analysts’ consensus forecast of 4.0%. The increase was driven primarily by higher fuel prices amid tensions in the Middle East. The data was released after the Reserve Bank of New Zealand raised the official cash rate to 2.50% on 8 July, reinforcing expectations of further monetary tightening in September. However, the impact proved short-lived, as escalating tensions between the US and Iran boosted demand for the US dollar as a safe-haven asset, causing the New Zealand dollar to surrender part of its recent gains during the second half of the week.
Technical Outlook
On the four-hour chart, NZD/USD has been developing a short-term uptrend since 26 June, with a trendline forming as the pair advanced towards 0.5870, where resistance emerged. The pair subsequently broke below the trendline, fell beneath the lower boundary of the current market profile and declined to the 0.5765 area, where the green support level is now located. Following a rebound from this zone, the pair moved on to test the lower boundary of the market profile at 0.5810. If this level holds and the price turns lower, the green support at 0.5765 could provide support. Should the pair continue to rise, attention may return to the POC area at 0.5840.
It is worth noting the close proximity of the upper boundary of the market profile at 0.5860 and the red resistance zone at 0.5870, making this a potentially strong resistance area. The RSI + MAs indicator currently reads 46, 37 and 46. It is also worth noting that the slower moving average has yet to leave the neutral zone, while the RSI briefly entered oversold territory before returning to neutral, casting doubt on the strength of the current breakout.
Summary
The pair’s near-term direction will likely depend on whether sellers can defend the lower boundary of the market profile. From a fundamental perspective, interest in the pair will hinge on whether the support provided by the stronger US dollar amid tensions in the Middle East proves more durable than the positive impact of New Zealand’s unexpectedly strong inflation data.
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