Yesterday’s hawkish Reserve Bank of New Zealand (RBNZ) signal give the NZD/USD solid footing with respect to yield spreads, and an opportunity to break above the 0.6925-0.7105 month-old range, economists at Westpac report.
NZ CPI data on Friday poses event risk
“NZD/USD momentum has flipped to positive, following yesterday’s hawkish surprise from the RBNZ. A test of the month-old range high at 0.7105 looms. If that level broke, we’d be targeting 0.7300 multi-week. It won’t be one-way traffic, though – the USD should find support from a continuing stream of strong data over the next few months.”
“The main NZ event near term is Q2 CPI data on Friday. This will be the first of the ‘spike’ quarters, and tell us something about how sustainable or transitory the spike will be. The RBNZ’s favoured model of core inflation – the sectoral factor model – will provide a clue on where structural inflation is heading. Our view is that parts of the inflation rise will be sustained, which is probably what the RBNZ will reveal when it publishes its own inflation forecasts in August.”
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