Inflation lifts NZ dollar above 70

The New Zealand dollar continues to exhibit considerable volatility. NZD/USD has punched above the symbolic 70 level on Friday and is currently trading at 0.7011, up 0.48% on the day.

New Zealand CPI blows past forecast

It’s been a roller-coaster week for the New Zealand dollar. The currency jumped 1.2% on Wednesday after the RBNZ announced it was halting assets. However, the kiwi surrendered most of these gains on Thursday, as the US dollar flexed some muscle.

Friday’s CPI release was much stronger than expected, sending the New Zealand dollar back into 70-territory. CPI for Q2 rose 1.30% QoQ, smashing past the consensus of 0.80%. Annual inflation has now reached 3.3%, a 10-year high. With CPI running much stronger than the RBNZ or the market had anticipated, and ANZ described the CPI release as ‘monstrous’. This means that the RBNZ will have to act fast, and Westpac has already projected a 90% likelihood of a rate increase in August. One hike won’t be enough, as inflation has pushed above 3%, the upper range of the bank’s inflation target. The bank will likely have to raise rates into 2022, and this is a bullish development for the New Zealand dollar.

There was positive news from the manufacturing sector, as the BusinessNZ Manufacturing Index accelerated to 60.7 in June, up from 58.6 in May. Manufacturing continues to expand, but at the same time, the industry is being hampered by labour shortages and logistic difficulties.

Powell says no policy shift in the offing

Fed Chair Powell kept to his dovish script on Thursday, in his second day of testimony before Congress. Powell’s message to lawmakers was that despite the surge in inflation, the Fed considers it a temporary event and expects inflation to ease lower. Powell poured cold water on any expectations for a shift in monetary policy, stating that the economy would first have to show “substantial progress”.

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NZD/USD Technical

• There is resistance at 0.7095. Above, we find resistance at 0.7191
• On the downside, there is support at 0.6913 which is protecting the round number of 0.6900. Below there is support at 0.6827

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