NZ CPI Lifts As Expected NZDCHF On Cusp Of A Breakout

Inflation data for New Zealand came in on target to see both annual and quarterly rise to 1.7% and 0.6% respectively. At 1.7%, it’s not too far from the centre band of their 1-3% inflation and CPI has clearly come a long way since its cycle low in 2016. And given RBNZ are watching inflation and employment data closely ahead of their 7^th August meeting, it lowers the potential for further easing if employment is to improve.

At their last meeting, RBNZ weren’t quite as dovish as expected, although they added a lower cash rate ‘may’ be needed over time which still left the door open for it. Still, even if August is another hold, the NZD 5 and 6-month NZD overnight index swaps have full priced in a 25bps cut by the end of the year.

NZD has remained the strongest major over the past month which has seen the bearish trends on GBP/NZD and EUR/NZD develop nicely. As my colleague Fawad Razaqzada highlighted yesterday, GBP/NZD is near key support levels to the potential for a pullback could be on the horizon before the trend continues.

However, we’re now watching NZD/CHF for a break higher and technical suggest we may have seen a significant low. The lower indicator is measuring a % rally from a 3-month high and low. We can see that the cross has fallen around 5% over the prior 60 days, a decline that saw a sizable bounce for NZD/CHF in January. Obviously, we do have the benefit of hindsight here as prices have since recovered about 3.5%. But the rebound is constructive, formed a V-bottom and provided a higher high and low with a shallow pullback.

• Today’s CPI data has seen it break to a new cycle high and now testing the March trendline
• A break of the trendline opens-up a run for 0.6695 resistance
• If we are to see a similar rebound in percentage terms like we saw in January, it could eventually head for the April high
• The bias remains bullish above 0.6527, whereas a break below 0.6527 suggests the bearish trend from the 2019 is set to resume.