NZDJPY breaks support ahead of key economic data

NZDJPY has broken out of its short-term upward trend in the lead up to some important economic data out of New Zealand and China. The pair is currently testing the base of the aforementioned channel and it could turn lower if it’s rejected at this level. RSI has also taken a turn lower and is approaching bearish territory. However, if price manages to push back through its former support line, it would negate this possible bearish scenario.

NZ CPI

On the data front, we await the release of New Zealand’s Q2 inflation and China’s Q2 GDP figures. Both sets of numbers have the potential to shock NZDJPY. NZ’s CPI is due out at 2245GMT and is expected to show that inflation jumped a respectable 0.4% last quarter (1.8% y/y). A higher than expected figure could reinforce the RBNZ’s hawkish policy stance, while a very soft number could give the RBNZ room to breathe. The bank already doesn’t have the highest expectations for overall inflation, but significant upward pressure remains in non-tradables inflation, thus it would take a very weak number to cast any real doubt over the RBNZ’s planned tightening cycle. In any event, it’s likely that the RBNZ will hike the official cash rate by another 25 bps later this month.

China GDP

In China, the fragile nature of its economic recovery means that the market could respond poorly if today’s figures are significantly lower than expected - the market currently expects GDP to have risen around 7.4% y/y last quarter (0200GMT). In saying that, growth should rebound later in the year, thus a slightly weaker than expected number, say 7.3%, wouldn’t be overly concerning and shouldn’t have a lasting negative impact on the markets. On the other side of the equation, a stronger than expected number today would likely cause a relief rally due to lingering concerns about the health of China’s economy.

Source: FOREX.com