The New Zealand dollar has maintained its bullish momentum from last week, starting the new week with more gains, notwithstanding the high inflation data recorded yesterday. According to the CPI data released Sunday for the New Zealand dollar, the consumer price index rose to 7.3% YoY in June 2022. This marks a 0.2% increase compared to the previous 7.1% YoY recorded in 2021.
Thus, the inflation rate for the New Zealand dollar is currently at a 32-year high. The last time inflation got to this point was in 1990. The primary cause of the current inflation within the economy comes from food, petrol, construction, and rentals for housing.
Most importantly, New Zealand witnessed a higher inflation rate within the second quarter. The QoQ reading for the New Zealand dollar increased to 1.7% against the forecasted 1.5%.
Despite the rising inflation rate for the New Zealand dollar, NZDUSD has remained bullish for the past three days. The pair has risen from $0.606 to a new high at $0.61984 in just three days alone.
Given the high inflation report for the New Zealand dollar, analysts believe there seem to be limits on how high this pair could go at the moment despite the bulls’ persistence. The bulls struggle to keep the price above the weekly resistance at $0.61871. This will be the determining point for this pair this new week. As long as the bulls defend this price level, we can hope for more gains on the New Zealand dollar with the next target of $0.6208. On the contrary, should the price fail to hold above this weekly support, we can expect a reversal with the first target at $0.612 and even lower.
On a broader perspective, the current bullish trend for the New Zealand dollar could be attributed to the recent interest rate hike last Wednesday by the Reserve Bank of New Zealand. The monetary policymakers had raised their interest rates for the sixth time by 50 basis points to fight the growing inflation. This has brought the New Zealand interest rate to a new level at 2.5%. The committee members were ready to raise the rates further until prices fall back to fair stability, supporting maximum sustainable employment and further economic growth. Hence, many predict that a higher interest rate hike might just be around the corner in August, given the high inflation data given yesterday for the New Zealand economy.
Will the bullishness continue for NZDUSD?
Several factors this week will determine if the current bullishness for NZDUSD will continue or slow down. These factors are therefore discussed below:
Trade balance
The monthly trade balance for New Zealand will be released on Wednesday. This is essential data that measures the value of imported and exported goods within the month. The forecast for this data is 240 million; the previous task for this data was 263 million. Investors often used this data to predict the direction of the currency in the succeeding month.
RBNZ statement of Intent
Another critical factor in determining the direction of the New Zealand dollar will be the following speech to be delivered by the RBNZ this Thursday. The committee will be expected to reaffirm its stand on a further interest rate hike for the currency. Also, they are to state the objectives and budgets to be achieved within the next three years. Any other hawkish stance from the committee will be bullish for the NZDUSD. Will a dovish stance discount this pair?
The dollar index has an irresistible effect on the performance of any other currency pair crossed with it in the market.
