NZD/USD holds in familiar ranges, coiling up for a breakout

The New Zealand dollar fluctuated at around 0.6250 vs. the US Dollar and struggled for direction while investors awaited the Reserve Bank of New Zealand's monetary policy decision next week and US inflation data on Friday. At the time of writing, NZD/USD is trading between a low of 0.6203 and a high of 0.6264, capped at late February and March´s resistance.

It's been a light data week for New Zealand, but the latest came from New Zealand's business confidence which was almost unchanged at -43.4 in March, remaining at very subdued levels compared to historical averages as manufacturing and services firms remained pessimistic, amid rising cost pressures. In this regard, New Zealand’s annual inflation is currently running near three-decade highs of 7.2%, well above the central bank’s medium-term target of 1%-3%. However, inflation indicators continue to inch lower and going in the right direction, albeit painfully slowly. The RBNZ has lifted its policy rate by a total of 450 basis points, bringing the cash rate to a 41-year record of 4.75%.

´´We expect RBNZ’s tone next week to be hawkish, mindful of resource constraints facing an economy in post-cyclone rebuild mode, and local banks strong and not at risk of some of the issues that plagued bust US banks,´´ analysts at ANZ bank said. ´´That leans toward the RBNZ pressing ahead with hikes amid recovering global risk appetite.´´

Traders now await the major US economic reports in Friday´s inflation data in the February reading of personal consumption expenditures (PCE). This is the Fed's preferred inflation gauge. January figures showed a sharp acceleration in consumer spending so the data will be closely eyed. 

Meanwhile, US data on Thursday showed that jobless claims last week rose more than expected from the week before indicating a cooling labor market, while fourth-quarter Gross Domestic Product growth was slightly lower at 2.6% compared with earlier estimates of 2.7%, both supporting the case for a softer Fed policy.