NZD/USD: Is it time for the New Zealand Dollar to shine?

Last week, we learned that the New Zealand labour market is doing much better than expected. Instead of increasing to 5.6% from 5.3%, the unemployment rate declined to 4.9%. 

The number of part-time jobs declined, while full-time jobs rose. Sectors such as construction, housing, education, healthcare, and public services are advancing. A combination of sharp interest rates cuts by the New Zealand central bank, the RBNZ, and fiscal stimulus boosts growth and lowered the unemployment rate. 

2.5% Inflation Ahead? 

The strong economy, higher crude oil prices, and all stimulus is causing some market commentators to pencil in an annual inflation rise to 2.5% in June 2021, from today’s rate of 1.4%. 

Such sharp rise in inflation will probably trigger FX traders to price in a more hawkish stance by the RBNZ, even if it’s likely that the New Zealand central bank will ignore pressure to withdrawal their ample amount of market stimulus. 

Fed and US Treasury to Remain in an Easing Path 

The US economy is also doing well, but the US central bank and the US treasury are still focused on nurturing their economy. Last week, the current Treasury Secretary, Janet Yellen, pitched President Biden’s $1.9$ trillion economic-package. She said that the US economy could reach full employment by next year, yet with no extra-economic support, it could take until 2025 for the unemployment rate to get to 4%. While, I think the effect of this, is already priced into the dollar already, it suggests that US Treasury will remain dovish, and focused on printing more dollars. 

US Central Bank Also to Remain Dovish

Prior to becoming the US Treasury Secretary, Janet Yellen lead, the US central bank for many years and its current leader, Jay Powell, is following in the same footsteps of his predecessor, and looks ready to do whatever is need to bring the economy back on track.  The central bank is also less sensitive to sharp rises in inflation, given its new policy to target an average inflation rate of 2 per cent. 

NZD/USD Technical Outlook

The NZD/USD pair is primed for a rise higher. The pair has been trading sideways between 0.7089 and 0.7246 since January 12, and this type of trading is an indication a price spike when the price finally manages to trade outside of the range. 

If we take the analysis one step further, we can see that the price is trapped in an ascending triangle pattern. The price tried last week to trade higher and reached 0.7255. A break to this level looks likely in the next 24 hours, and if the price indeed manages to take out 0.7255, the price might be on its way to the ascending triangle pattern of 0.7386. This outlook will remain in play as long as the price trades above this week low of 0.7194. 

NZD/USD Six-hour Chart