Key Points: -
- The NZD/USD pair is currently in a consolidation phase following the gains made after New Zealand's inflation data release, as market sentiment remains mixed and the US Dollar experiences a corrective bounce.
- The New Zealand second-quarter Consumer Price Index (CPI) came in better than forecast, but the softer outcome compared to market expectations supports the Reserve Bank of New Zealand's decision to maintain its current monetary policy stance.
- The overall risk profile in the market remains sluggish, despite the optimism generated by positive news regarding US banks, which bolstered sentiment in the previous day's trading.
- The US Dollar is finding support from the upbeat details of the Retail Sales report, although concerns about the Federal Reserve's future actions continue to influence buyers of the greenback.
Today's Scenario: -
The NZD/USD pair is trimming its initial daily gains and currently trading around 0.6285 during Wednesday's mid-Asian session. Earlier in the day, the pair briefly reached a high of 0.6334.
The recent weakness in the Kiwi pair could be attributed to the US Dollar's ability to hold its ground after a corrective bounce from multi-month lows, as well as sluggish market conditions. However, the New Zealand (NZ) inflation data, which came in better than expected, is providing support to the Kiwi pair.
The NZ Consumer Price Index (CPI) for the second quarter (Q2) of 2023 showed a slight decline to 1.1% quarter-on-quarter and 6.0% year-on-year, compared to respective previous readings of 1.2% and 6.7%. This data validates the cautious sentiment in the market regarding the Reserve Bank of New Zealand's (RBNZ) pause in its rate hike trajectory announced last week.
It's worth noting that the US Core Retail Sales data for June, which exceeded expectations, contributed to the US Dollar's recovery from its lowest level since April 2022. However, the overall risk-on sentiment and discussions about a potential policy pivot by the US Federal Reserve (Fed) are supporting the US Dollar bulls in the absence of major data or events, putting pressure on the NZD/USD price.
Improved risk appetite, driven by positive performance in US banks and positive headlines regarding China, has also led to fresh yearly highs in Wall Street benchmarks. Additionally, a recent Reuters poll of around 109 economists suggests that the widely anticipated 25 basis points rate hike by the Fed in July will likely be the final increase of the current tightening cycle, which is supporting the NZD/USD price.
Regarding US data, June's Retail Sales growth came in at 0.2% month-on-month, lower than the expected 0.5% and revised previous reading. However, the Retail Sales Control Group showed growth of 0.6%, surpassing market forecasts of -0.3% and the previous reading of 0.3%. US Industrial Production for June printed at -0.5%, falling short of analysts' expectations of 0.0%.
In light of these market dynamics, the US Dollar Index (DXY) is slightly higher around the 100.00 level, having bounced back from 99.56 the previous day. The S&P500 Futures and yields appear indecisive at the moment.
Given the lack of major data or events and the defense of geopolitical bias toward the US by China's Foreign Minister, traders of the NZD/USD pair should closely monitor risk catalysts for clearer direction in the market.
Diagram of NZD/USD: -
Economic Events: -
Buy Scenario: -
There is a possibility that the price may experience a bullish rebound from the first support level at 0.625, which is considered a support level after a pullback. This level also aligns with the 50% Fibonacci retracement level, adding to its significance. Furthermore, the second support level at 0.611 acts as an overlapping support, coinciding with the 78.60% Fibonacci retracement level, further reinforcing its importance.
On the upside, the first resistance level at 0.630 is identified as an overlapping resistance. If the price successfully breaks above this level, the next obstacle to watch for is the second resistance level at 0.641, which is characterized as a resistance level based on previous swing highs. Till we do not advise to buy NZD/USD.
Sell Scenario: -
The NZD/USD pair closed yesterday with clear negativity as it broke below the 0.6290 level and settled below it. Today, the pair has continued to decline, moving further away from this level. This confirms the end of the previously suggested bullish wave and indicates a shift towards a downward direction, targeting negative levels starting at 0.6205 and followed by 0.6140.
As a result, the overall bias for today is bearish. If the pair manages to break below the 0.6260 level, it would provide further confirmation of the expected decline. On the other hand, a break above the 0.6290 level would be a positive factor, potentially leading to new recovery attempts. Till we do not advise to sell NZD/USD.
Support and Resistance Level: -
S1 0.6240 - R1 0.6326
S2 0.6206 - R2 0.6378
S3 0.6154 - R3 0.6412