NZ dollar calm ahead of key job data

The New Zealand dollar has settled down after some significant volatility late last week. NZD/USD is trading slightly below the 70 level, which has psychological significance.

New Zealand job numbers could cement rate hike

New Zealand releases key employment numbers on Tuesday for Q2, and these tier-1 events are the most important releases ahead of the next policy meeting on August 18th. The quarterly Employment Change and unemployment rate releases could have a significant impact on the movement of NZD/USD.

Employment change is expected to post a gain of 0.7%, little changed from the Q1 reading of 0.6%. The unemployment rate has been moving downwards and fell to 4.7% in Q1, down from 4.9%. This positive trend is expected to continue, with a forecast of 4.5% for the second quarter.

If Tuesday’s job numbers are strong, the New Zealand dollar could get the boost it needs to punch back into 70-territory. More importantly, it will make virtually certain a rate hike from the RBNZ. A massive CPI reading of 1.3% in July, which pushed annual inflation to 3.3%, has sent expectations soaring with regard to a rate hike. After the CPI release, Westpac sent a note which pegged an August rate hike at 90%.

US inflation falls short of consensus

On Friday, the US released a key inflation gauge, which although lower than expected, pointed to strong inflation. The Core PCE Price Index, the Fed’s preferred inflation indicator, rose 0.4% MoM (0.6% est.) and 3.5% YoY (3.7% est). For now, the markets are going along with the Fed stance that the rise in inflation is temporary, but skepticism will grow if inflation doesn’t start to ease soon. The PCE price index is at an annual clip of 4%, while CPI is even higher. Both have easily overshot the Fed inflation target of 2%, as the spectre of even higher inflation remains a major headache for Fed policymakers.

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NZD/USD Technical

• There is resistance at 0.7012. Above, we find resistance at 0.7087
• On the downside, there is weak support at 0.6949. The next support line is at 0.6847

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