New Zealand dollar strengthens as traders await RBNZ rate decision

• The New Zealand dollar holds positive ground in the first Asian session on Tuesday.
• Reduced bets on an RBNZ rate cut and signs of stronger demand from China supported Kiwis.
• Rising geopolitical risks in the Middle East could limit the pair’s downside.
• The US producer price index (PPI) will be in focus on Tuesday ahead of the RBNZ rate decision.

The New Zealand dollar (NZD) is trading on a stronger note on Tuesday amid a modest decline in the greenback. New Zealand’s stronger-than-expected employment report last week dampened the possibility of a rate cut by the Reserve Bank of New Zealand (RBNZ) on Wednesday, which continues to support Kiwis. Additionally, signs that Chinese demand is improving could help boost the NZD, with China being New Zealand’s largest trading partner.

On the other hand, haven buying amid heightened geopolitical tensions in the Middle East could push the US dollar (USD) higher. The RBNZ interest rate decision and Wednesday’s press conference will be closely watched. Messages of sorts from RBNZ Governor Adrian Orr could lift the NZD against the USD in the near term. Elsewhere, traders will be keeping an eye on US economic data, which should shed further light on the Federal Reserve’s (Fed) rate outlook. The Producer Price Index (PPI), Consumer Price Index (CPI) and Retail Sales will be released on Tuesday, Wednesday and Thursday respectively.

Daily Digest Market Movers: NZ dollar rises as all eyes on RBNZ interest rate decision

• ING FX analysts Francesco Pesole and Chris Turner noted: “We strongly favor hold in August, but see a better chance of the RBNZ cutting 50bps in October after the Fed moved first. Finally, with more than 90 basis points of price cuts by the end of the year, the difference between a driver discount and a dovish hold may not be huge: we still think the relaxation bets can be reduced by the end of the year .”
• 12 out of 21 economists polled by Bloomberg expect the RBNZ to leave its OCR unchanged at 5.5% on Wednesday.
• More than half of the NZIER Shadow Board expect a 25bps cut in OCR is needed due to the persistent weakening of the New Zealand economy. The other members suggested that the central bank of New Zealand should keep the OCR at 5.50%.
• The US producer price index (PPI) is expected to fall to 0.1% on the month in July, from 0.2% in June.
• Traders estimated a nearly 47.5% chance the Fed would cut rates by 50 basis points (bps) at the September meeting, down from 52.5% last Friday, according to the CME FedWatch Tool.

Technical Analysis: The New Zealand Dollar is downtrending

The New Zealand dollar is trading stronger today. NZD/USD’s bearish outlook remains intact on the daily chart as the pair remains below the key 100-day exponential moving average (EMA). However, if the price breaks decisively above the key EMA, it would resume the uptrend. Meanwhile, the 14-day Relative Strength Index (RSI) is slightly above the 50 median line, indicating a potential shift to more bullish sentiment in the near term.

An upside turn could expose NZD/USD to the 100-period EMA near 0.6050. Any further buying above this level will see a rise to 0.6082, the upper limit of the Bollinger Band. Further north, the next bullish target appears at 0.6134, a July 8 high.

On the other hand, an August 6 low at 0.5912 acts as an initial support level for the pair. Extended losses below this level could pave the way to 0.5856, a July 29 low and lower bound of the Bollinger Band.