The New Zealand quarterly Consumer Price Index (CPI) data came in at 0.4% Q/Q, missing the 0.5% forecast slightly. However, instead of trading lower, NZD/USD pushed higher due to the strong strong 0.9% Y/Y print that met expectations. Also, despite missing target, the 0.4% print still makes inflation rate at the highest since 2012 Q1. This stoked speculations of rate hike from RBNZ, pushing NZD/USD towards the 0.85 round number during early Asian trading session.
Price was already trading higher since 16th April low mostly due to recovery in risk related assets following 2 days of slide. Gold and other metals have recovered slightly, pulling commodity currencies such as AUD and NZD along with them. Dairy products have also edged to record highs at the latest GlobalDairyTrade auction. All these factor allowed NZD/USD to recover more than 100 pips higher from the recent low of 0.838.
However, from a technical point of view, the recovery from 0.838 to 0.85 did not make a significant dent to the overall bearish backdrop, at least not yet. Price has managed to break above the descending trendline, but bullish momentum has now stalled with price trading below the rising trendline, with Stochastic reading is currently heading lower after forming a triple top during the recovery rally.
Direction from daily chart still remains unclear, with current candle stick forming a doji representing uncertainty with price levels straddling at the intersection point between the rising trendline and structural ceiling between Dec ’12 to Feb ’13. Similarly to short-term chart, Stochastic favors downside with a bear trend currently underway. However, bears may need to find further confirmation to the downside as the 3 Black Crows bearish reversal candlestick patterns did not manage to break the rising trendline, which suggest that current bullish run from Mar low is still going strong – same issue faced by AUD/USD.
Fundamentally, there are signs that the drought is easing, which will help producers tremendously in the next few months. We could see stronger domestic economy out of New Zealand which will also impact housing prices further. Currently we do not have any fresh statements/commentary from RBNZ members ever since Dep Gov Spencer threatened rate hikes during early April. According to Credit Suisse OIS, market is pricing in 12% probability that RBNZ will raise policy rate by 25 bps within the next 12 months. This suggest that a rate hike scenario have not been fully priced in, and should the next RBNZ statement continue in similar hawkish vein, upside potential for NZD/USD will remain high, which may allow Kiwi dollar to test 0.868 high once more.