The NZD/USD has been in a range in the past two months. The pair is trading at 0.7040, which is 2.40% above the lowest level in July. It is also about 0.70% below the highest point in August.
New Zealand economic review
The New Zealand economy is doing well as the country recovers from the pandemic. Recent data shows that the unemployment rate declined from 4.6% in the first quarter to 4.2% in the second quarter. Wages and participation also rose in Q2. The jobs that were lost during the pandemic were recovered.
Data published in August showed that electronic card sales rose from 4.0% in June to 4.2% YoY in July. Retail sales are important flash indicators of consumer spending, which is the biggest component of the GDP.
Meanwhile, the Consumer Price Index has risen above the Reserve Bank of New Zealand (RBNZ) target of 2.0%. CPI moved from 1.5% in the first quarter to 3.3% in Q2 as the prices of most items rose.
Furthermore, the country’s trade sector is doing well. Exports rose from 5.89B NZD in May to 5.95 NZD in June, while imports rose from 5.40 NZD in May to 5.69 NZD in June. As a result, the country’s trade surplus fell from 480 million to 280 million NZD.
This recovery will likely continue considering that the country is planning to reopen its borders to foreigners. The government highlighted its plan to accelerate its vaccination process and reopen the borders in early 2022. This will help the country’s struggling hospitality sector.
RBNZ interest rate decision
It is against this backdrop that the RBNZ will conduct its August monetary policy meeting. Analysts expect that the bank will maintain its hawkish policy stance, considering that the New Zealand economy is recovering at a faster rate than expected.
In the July meeting, the bank left the Official Cash Rate (OCR) unchanged at 0.25%. It also decided to abandon its 200 million NZD per week asset purchase program.
As a result, it became the first major central bank to end its quantitative easing (QE) program. If it hikes, it will also become the first major bank to hike interest rates after the pandemic started.
The Fed has continued its $120 billion a month asset purchase program while the ECB is still implementing its 1.8 trillion euro asset purchase program.
Still, the biggest risk for the RBNZ is the Delta variant and the rise of breakthrough Covid-19 cases. The decision comes at a time when the NZD/USD has been in a tight range. The pair has already dropped by more than 5% from the highest point this year.
Other key catalysts for the NZD/USD this week will be the latest Federal Open Market Committee (FOMC) minutes that will come out on Wednesday. It will also react to the latest US retail sales.
NZD/USD technical analysis
The daily chart shows that the NZD/USD price has been in a relatively tight range recently. The pair is trading 0.7043, which is substantially below the year-to-day high of 0.7463. A closer look shows that the pair is along with the 25-day and 50-day Moving Averages. The pair has also formed a narrow channel.
Therefore, the pair will likely break out lower after the latest RBNZ interest rate decision. If this happens, the next key level to watch will be the 50% Fibonacci retracement level at 0.6468, which is about 8% below the current level.