The NZD/USD exchange rate will be in focus this week as the Reserve Bank of New Zealand (RBNZ) delivers its interest rate decision on Wednesday and the US publishes key economic data. It was trading at 0.600 on Tuesday morning, a few points below the key resistance level at 0.6028. This price is almost 10% above the lowest level this year.
RBNZ interest rate decision ahead
The main catalyst for the NZD/USD exchange rate will be the RBNZ interest rate decision on Wednesday. Economists polled by Reuters expect the bank to continue cutting interest rates to support economic growth.
Despite some analysts anticipating a 50 basis point reduction, the bank is expected to implement a 25 basis point cut. This will be the sixth interest rate cut in the current cycle, lowering rates from 5.50% to the present 3.25%. Analysts also expect that the bank will point to more cuts later this year, with one of them telling Bloomberg:
“Pronounced uncertainty means the RBNZ will want optionality on policy moves, so we’d expect cautious, data- and event-dependent commentary on the outlook for monetary policy.”
The RBNZ will cut interest rates even as recent data has shown that inflation has continued to rise in the past few quarters. Statistics New Zealand data revealed that the headline Consumer Price Index (CPI) rose from 2.2% in Q4 to 2.5% in Q1 of this year. The figure bottomed at 2.2% last year and analysts expect it to approach 3% in the coming months.
New Zealand’s unemployment rate remained unchanged at 5.1%, while there are signs of falling consumer and business confidence.
Hopes of a rate cut on Wednesday has led to a big drop in New Zealand’s bond yields. The ten-year yield dropped to 4.610% from the year-to-date high of 4.895% to 4.610%. Similarly, the five-year yield dropped to 3.9%.
FOMC minutes and key US data
The next key NZD/USD catalyst will come from the United States, which will publish some important data this week. First, the Conference Board will publish the latest consumer confidence report on Tuesday. Economists expect the data to show that confidence rose slightly from 86 to 87 in April as tariff concerns eased.
Consumer confidence is an important report because of the vital role that their spending plays on the economy. A higher confidence level helps to drive consumer spending and the GDP higher in the long term.
The NZD/USD will then react to the upcoming FOMC minutes on Wednesday. These minutes will provide more color on what to expect in the coming months, with most analysts expecting the first interest rate cut to happen in September.
The next key data to watch will be the US GDP numbers and PCE report on Friday. The PCE is a key number that measures the state of inflation in rural and urban areas, and is the one that the Fed mostly focuses on.
NZD/USD technical analysis
The daily chart shows that the NZD/USD exchange rate has been in an uptrend after bottoming at 0.5485 earlier this year. It jumped to a high of 0.6030, where it found substantial resistance. It has failed to move above that level three times so far, forming a triple-top pattern whose neckline is at 0.5850.
The pair has moved above the 50-day and 100-day Exponential Moving Averages and the 50% Fibonacci Retracement level.
Therefore, the pair’s outlook is bearish because of the triple-top pattern. If this happens, the key point to watch will be the neckline at 0.5850. On the flip side, a move above the resistance level at 0.6028 will invalidate the triple-top and point to more gains ahead.
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