NZD/USD: starting out with a bullish bias post US CPI misses, eyes for 0.7376

Currently, NZD/USD is trading at 0.7354, down -0.08% on the day, having posted a daily high at 0.7355 and low at 0.7343.

NZD/USD has started out the day with a bullish bias, despite the first disappointing piece of data to kick off the week in NZ's June services PMI that arrived 58.6 vs prior 58.8. However, this is not a head turning event in the markets and focus stays with a broader tone and the softness in the greenback due to the end of last week's CPI miss from the US.

US CPI: inflation below expectation in June - Wells Fargo

Analysts at Brown Brothers Harriman explained that although June inflation and consumption data are unlikely to have much weight in the Fed's decision in September, the market's reaction was to take US rates lower and reduced the perceived chances of another rate hike this year.  "The implied yield on the December Fed funds futures contract fell to its lowest level in nearly a month (1.225% vs. the current effective rate of 1.16%).  The relatively light US economic calendar next week means that there may not be data of sufficient gravitas to negate the sense that the US economy is stuck in a low gear," added the analysts at BBH.

Indeed, inflation is the key theme in markets at the moment and analysts at Westpac explained that the New Zealand dollar has continued to push higher against the greenback, and on a trade-weighted basis, is around 3% higher than what the RBNZ was expecting. "As well as adding to the challenges for exporters, lingering strength in the NZD/USD will continue to dampen imported inflation. Indeed, the strong rise in the New Zealand dollar over 2016 has yet to be fully reflected in the prices of imported goods such as clothing, cars, electronics and home furnishings," explained the analysts at Westpac.

Westpac's 1-3 month outlook for NZD/USD:  

Their forward outlook suggests that the Fed’s tightening cycle plus US fiscal expansion should eventually reassert upside pressure on US interest rates and the US dollar, pushing NZD/USD below 0.6800 by year end. US factors should outweigh local factors which are mostly supportive.

NZD/USD levels

Resistance: 0.7376 Feb. 7 high; 0.7393 Nov. 9 high. Support: 0.7322, 0.7300, 0.7280, 0.7220, 0.7205/06 June 22/21 lows; 0.7186 June 15 low; 0.7150 June 5 high; 0.7127 June 6 low. On the wide, on a break below 0.7080/00 opens 0.6970.