NZD/USD: 20-D EMA downside target met, eyes back to 0.66 the figure on break of 200-hr SMA

  • NZD/USD reached the 20-D EAM target, stalling in quiet US markets.
  • Consolidation opens a run back to test 0.66 the figure.
  • All eyes on US CPI. 

The bird continued to slide yesterday and met a key downside target before stalling in quiet US trade which gives rise to a correction back towards 0.66 the figure as markets get set of the US CPI data to be released to tomorrow. The data is critical ahead of next week's Fed where some participants see cause for the Fed to act and cut rates.

Federal Reserve Chair Powell recently expressed the FOMC's concerns over heightened trade uncertainty and risks to global, and domestic, growth. Trump and Xi are due to meet at the G20 this month which has relaxed some nerves in the market, but indeed, it will be a high-steak meeting and Trump is proposing to enforce tariffs should Xi not play ball. Risk off will be a theme leading into the G20 28 to 29 the, but the Fed comes first, on June 18-19, and will likely set market positioning in the dollar ahead of the G20. Indeed, before that Fed meeting will be crucial as any further evidence that rising global headwinds are adversely impacting US domestic demand would intensify pressure on the Fed to cut rates, possibly this summer. First up we have the US CPI.

US CPI in focus

"We look for headline CPI to slow two tenths to 1.8% in May — a tenth below consensus — on the back of a mild 0.1% seasonally-adjusted monthly increase. Core inflation, on the other hand, should remain steady at 2.1% y/y, reflecting a firm 0.2% m/m advance," analysts at TD Securities look for, adding:

"With the Fed pointing to low inflation (albeit temporary according to some members) as a possible cause — alongside developments in trade — to reconsider the Committee's interest rate outlook, we will be watching CPI closely."

RBNZ likely to continue to cut rates

Citing a faltering global economy as well as New Zealand businesses that are reluctant to spend and invest, analysts at ANZ Bank New Zealand think that more OCR cuts will be needed to ease financial conditions further and ensure that monetary policy supports a gradual recovery in growth, inflation and employment. In such a scenario, should the Fed hold off from cutting rates so soon, there are bearish risks for the bird.

NZD/USD levels

The Kiwi fell away from the late January and February lows, as well as the 200-day moving average at 0.6708/19 having broken below the 50-D EMA that met the 23rd April lows. Instead, bears have turned up, piling into the current trajectory and have indeed tested the 20-D EMA and 24/25 April double bottom lows at 0.6580 which gave way towards 0.6560. There has been some demand down here, but the price is still trading below the 200 hour SMA which leaves the May low at 0.6475 as well as in the 0.6464/24 area in focus. A failure there opens the 2016 low at 0.6347. On the flipside, should bulls get back above the 0.66 handle, eyes will turn back towards the 50-D EMA at 0.6630 and then the 200 D EMA on the 0.67 handle. 

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