By Samir Al Khoury,
The Reserve Bank of New Zealand (RBNZ) today unexpectedly cut interest rates by 25 basis points, from 5.50% to 5.25%, marking the first reduction since March 2020.
Recent economic data from New Zealand indicates that the economy is showing signs of weakness, as evidenced by the following:
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The Consumer Price Index (CPI) fell on an annual basis, recording growth of 3.3%, below expectations of 3.5% and the previous reading of 4.0%.
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The Building Permits Index contracted by 13.8% on a monthly basis, which is a further decline from the previous reading of -1.9%.
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The unemployment rate increased to 4.6%, exceeding the previous figure of 4.4%.
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The Business Purchasing Managers’ Index (PMI) dropped to 41.1 points, indicating a contraction and falling short of the previous reading of 47.2.
The New Zealand Dollar (NZD) is currently hovering around the 0.60 level against the US Dollar, down by approximately 5% year-to-date.
Today, both US headline and core CPI data are expected to be released, with the headline CPI anticipated to come in at 3.0%, consistent with the previous reading. Core CPI, which excludes food and energy, is expected to be 3.2%, down slightly from June’s 3.3%.
Given this context, caution is advised. A higher-than-expected CPI reading could be significantly bearish for the NZD/USD pair and may also negatively impact stocks, bonds, and commodities, particularly gold, due to the inverse relationship between the US dollar and other financial instruments.
From a technical perspective, if the NZD/USD pair breaks below the pivot point of 0.6058, it may target support levels at 0.6033, 0.5990, and 0.5965. Conversely, if it exceeds the pivot point, it is likely to aim for resistance levels at 0.6101, 0.6126, and 0.6169. The Relative Strength Index (RSI) is currently around 51 points, close to the neutral level; any downward movement below 50 points could indicate the beginning of negative momentum for the NZD/USD pair.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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