Home Forex Market Analysis NZDUSD: Pair Strengthens After Strong CPI Data Paves the Way for OCR...

NZDUSD: Pair Strengthens After Strong CPI Data Paves the Way for OCR Hike

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NZDUSD: Pair Strengthens After Strong CPI Data Paves the Way for OCR Hike
  • New Zealand reported a surge in the CPI for Q2 2021 (QoQ) at 1.3% and 3.3% (YoY)- the highest in 10 years. 
  • The RBNZ targeted inflation to remain within the upper deck of 3% before considering an OCR hike. 
  • NZ banks have started raising mortgage/ deposit rates as the RBZN decides to stop bond purchases under the LSAP in August 2021. 

The NZDUSD pair gained 0.56% as of 1:29 am GMT on July 16, 2021, from the previous day’s close. It hit a high of 0.7024 after opening at 0.6982. Selling momentum had increased among investors as the pair had lost 0.76% a few hours before (at 2:57 pm GMT), where it traded at a low of 0.6979. The US dollar gained against the New Zealand dollar after continuing weekly jobless claims in the US declined 3.74% to 3,241,000 from 3,367,000. 

Strong NZ CPI

New Zealand reported a surge in the consumer price index (CPI) for Q2 2021 (QoQ) at 1.3% from a previous reading of 0.8%. It beat estimates at the same level of 0.8%, boosting the NZD into July 16, 2021. 

New Zealand consumer price index (CPI)

The annual CPI change measured in June 2021 (YoY) rose 3.3% – the biggest change in more than a decade. It rose from a previous reading of 1.5% and beat estimates at 2.8%. The Reserve Bank of New Zealand (RBNZ) maintained the official cash rate (OCR) at 0.25% in its last meeting on July 14, 2021. Expectations were rife that the central bank would raise the rates in November 2021. 

The rise of inflation to a 10-year high shows that the RBNZ may consider raising rates as early as August 2021. ANZ banking group described New Zealand’s inflation growth as “monstrous,” forecasting a surge to 4% by the end of 2021. Markets are pricing in a 90% chance of an August rate hike. 

The RBNZ targeted inflation to remain within the upper deck of 3% before considering a positive review of interest rates. However, the steady rise in the price of goods and services coupled with a 16% annual increase in petrol price could give perspective to higher OCR. 

Retail sales in NZ

New Zealand retail sales

New Zealand retail sales

Q1 2021 saw retail sales in New Zealand jump to 6.8% from 4.6% in the previous quarter. 

House prices have risen dismally from May 2021 to June 2021. While national sales volumes declined 5% between the two months, house prices gained less than 1% in the same period. Data from the real estate institute (REI) indicated that median house prices were up 0.3% from May at NZ$817,500 to NZ$820,000 in June 2021. 

National turnover (in-house sales) fell 4.86% from NZ$7,720 in May 2021 to NZ$7,345 in June 2021. This consistent rise in housing prices, albeit minimal, does add impetus to the push to have the OCR increased to curb the boom. Already, NZ’s ASB bank raised its fixed-1 year mortgage/ deposit rate from 2.19% to 2.55% (+0.36% points) per year. The 2-year fixed rate was also raised by 0.36% points from 2.59% to 2.95%. 

The RBNZ’s decision to consider stopping quantitative easing or (large-scale asset) bond purchases may be a prelude to raising the OCR. The limit of the LSAP had been lifted from NZ$60 billion to NZ$100 billion by 2021. It is scheduled to be halted by July 23, 2021. 

Technical analysis

The NZDUSD pair hit resistance at 0.7321 before falling and finding support at 0.6911 in the YTD. 

NZDUSD chart

Bullish momentum is rising, as shown by the 14-day RSI at 43.83. We expect the price to stay within the range from 0.6909 to 0.7104. 

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