NZD/USD bears back in the driving seat, eyes on 38.2% Fibo'

NZD/USD can run higher although today's US Consumer Price Index likely means that the Federal Reserve is not about to cut rates so deep too soon, and a 50 basis point cut has been discounted with markets expecting just a 25 basis point cut this month. 

Fed Chair Powell stuck to the script and maintained an easing bias in his much-awaited two-day testimony to Congress this week which ended today, but was followed by the FOMC minutes yesterday, underpinning the noting for a rate cut.  The USD unsurprisingly dropped yesterday as the Fed’s July cut remained in play, giving the kiwi a much-needed boost. However, with the US inflation figures rising above estimates during June, 0.3% inter-month and 2.1% from a year earlier,  the dollar turned bid and the CPI prints lifted US yields.

New Zealand CPI in focus

Looking ahead, besides the FOMC,  the June quarter CPI figures are released next Tuesday (16 July).

"We expect headline CPI rose 0.6% in the June quarter, with annual inflation ticking up from 1.5% to 1.7%. Tradable inflation is expected to print at 0.8% q/q, supported by higher fuel prices, with non-tradable inflation rising 0.3% q/q. Core inflation measures should continue to track broadly sideways," analysts at Westpac explained. 

"The Q2 inflation print should add to the case that inflation pressures have stalled and more is needed from the RBNZ to support the economy and get inflation back to 2%. The non-tradable (domestic) inflation print and core inflation measures will be crucial for the RBNZ, following several quarters of stability in the core measures. We’re expecting Q2 will mark the peak in annual non-tradable inflation for now."

NZD/USD levels

The bird is travelling higher but has taken out the stops above the 7th June highs and 4th July lows and has typically reverted back to the downside, resting at a familiar support and resistance line at 0.6656. 0.6620s will be a downside target that likely hold an accumulation of stops just below the 38.2% Fibo' retracement of the 0.6480s to 0.6725s swing lows and highs and recent range.