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RBNZ expected to hold rates steady this year, go long NZD/USD – Growth Aces

FXStreet (Barcelona) - Reviewing the NZ CPI data release, the Growth Aces Research Team expects inflation to rise in the coming quarters, which will keep RBNZ hold rates for the rest of the year, and support NZD.

Key Quotes

“New Zealand’s CPI amounted to -0.3% qoq and 0.1% yoy vs. median forecast of 0.2% yoy and 0.8% yoy in the previous quarter.”

“The Reserve Bank of New Zealand's March monetary policy statement forecast a quarterly fall of 0.4% and an annual rate of 0.0%. The RBNZ is required to keep inflation within a 1-3% target band on average over the medium term, but has indicated it wants it around 2%.”

“Inflation data came in slightly below the median forecast. However, the details suggest that the number was not as weak as the heading figure suggests, because domestic inflation is probably slightly higher than the RBNZ was expecting. Inflation is likely to rise in the coming quarters.”

“The RBNZ has held its official cash rate steady at 3.5% since last September and has signalled it expects to stay on hold into next year. We do not expect a rate cut this year. However, some market participants see a cut as soon as in June. In our opinion these expectations will diminish soon that should support the NZD.”

“The People's Bank of China lowered the reserve requirement ratio for all banks by 100 basis points to 18.5%, effective from April 20, to help spur bank lending and combat slowing growth. China is the biggest export market for New Zealand.”

“The NZD/USD hit 0.7720 after the Chinese central bank decision. The 0.7722 level is the 76.4% fibo of 2015 fall, so a strong resistance level. In our opinion a corrective move is possible before breaking above this level. We are looking to get long at 0.7630. A key support is at 0.7581, daily low on April 16.”

“Resistance: 0.7722 (76.4% of 2015 fall), 0.7740 (high Apr 17), 0.7782 (high Jan 20)”

“Support: 0.7646 (low Apr 17), 0.7581 (low Apr 16), 0.7576 (10-dma)”

“NZD/USD: buy at 0.7630, if filled - target 0.7850, stop-loss 0.7520”

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