NZ dollar breaks 70 but retreats

New Zealand posted positive data on Tuesday, which lifted the New Zealand dollar, albeit briefly. NZD/USD crossed above the symbolic 70 line but was unable to consolidate these gains. Currently, NZD/USD is trading at 0.6987, up 0.15% on the day.

NZ dollar quiet ahead of RBNZ meeting

The New Zealand dollar received a brief boost from the Food Price index for June, which showed a strong gain of 1.4%. This was up sharply from the May reading of 0.4% and marked the strongest gain since February 2020. NZD/USD briefly pushed past the 70 level, which has been relevant throughout July.

The RBNZ holds its policy meeting early on Wednesday (2:00 GMT), and the New Zealand dollar is unlikely to show any significant movement ahead of the meeting. The bank is widely expected to maintain interest rates at 0.25%. At the May meeting, policymakers surprised the markets with a projection of raising rates to 0.49% in September 2022 and at least 1.78% in June 2024. The minutes of the May meeting emphasised that this forecast was conditional on the economy improving as expected, but the stance of the bank has clearly become more hawkish. Some analysts have gone even further, predicting a rate hike this November.

It will be interesting to see if the RBNZ rate statement refers to the resurgence of Covid. New Zealand’s Covid Response Minister Chris Hipkins has expressed his concern over the particularly in Australia, with New South Wales under lockdown due to an increase in Covid cases. The rise in cases of the Delta variant worldwide has hurt risk sentiment and could curb demand for the New Zealand dollar.

Attention will shift from the RBNZ to inflation, with New Zealand releasing Q2 CPI on Thursday. The consensus is a gain of 2.8% YoY, up sharply from the first-quarter reading of 1.5%.

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NZD/USD Technical

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

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