NZD/USD Forex Technical Analysis – RBNZ Hikes Rates, but Gains Capped Ahead of US CPI Report

The New Zealand Dollar is trading nearly flat on Wednesday after showing a limited reaction to the Reserve Bank of New Zealand’s (RBNZ) sixth straight interest rate hike. In addition to the rate hike, policymakers signaled it remained comfortable with its planned aggressive tightening path as authorities seek to reduce second-round effects of runaway inflation.

At 05:53 GMT, the NZD/USD is trading .6126, unchanged.

RBNZ Raises Rates, Sees Near-Term Risks

The RBNZ raised the official cash rate by 50 basis points to 2.5%, a level not seen since March 2016. Continued tightening at pace to maintain price stability and support maximum sustainable employment was appropriate, it said. The rate hike matched economist expectations.

In addition to the rate hike, the policy committee also acknowledged there was near-term upside risk to consumer price inflation and emerging medium-term downside risks to economic activity.

US Headline Inflation Expected to Remain Hot, ‘Core’ Inflation May Have Peaked

The focus now shifts to the U.S. Consumer Price Index (CPI) report, due to be released at 12:30 GMT. The headline CPI data is expected to show inflation gathered heat in June, however, the so-called ‘core’ CPI, which strips away volatile food and energy prices, is seen offering further confirmation that inflation has peaked, which could potentially convince the Federal Reserve to ease on its policy tightening in autumn.

Fed/RBNZ Policy Divergence Favors US Dollar

Both the Fed and RBNZ are hawkish, but the Fed is expected to raise rates at a much faster pace than its New Zealand counterpart. Additionally, the U.S. economy is stronger than the New Zealand economy. This should limit the upside potential of the NZD/USD.

Short-Term Outlook

Trader reaction to the minor pivot at .6145 is likely to determine the direction of the NZD/USD on Wednesday.

Bearish Scenario

A sustained move under .6145 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into Monday’s low at .6097.

Taking out .6097 with conviction could trigger an acceleration to the downside with the May 15, 2020 main bottom at .5921 the next potential target.

Bullish Scenario

A sustained move over .6145 will signal the presence of buyers. The first upside target is a minor pivot at .6175. Overtaking this level could extend the rally into the long-term Fibonacci level at .6232.

Side Notes

Controlling the near-term direction of the NZD/USD is the long-term Fibonacci level at .6232.