Halister News

(Bloomberg) -- NZD/USD is likely to test its bull trend support if N.Z. 2Q inflation is weaker than forecast and raises the odds of an RBNZ rate cut next month, Bloomberg strategist David Finnerty writes.

• Markets are currently pricing in a 64% chance of a RBNZ rate cut at its Aug. meeting
• 2Q CPI will likely show a 0.5% q/q rise, up from 0.2% q/q in 1Q, according to median est. of economists in Bloomberg survey; data due July 18 at 10:45am local time
• On July 7, RBNZ’s Spencer said further rate cuts could threaten financial stability, but the CPI outlook will ultimately determine monetary policy
• RBNZ said yesterday it would issue a brief update on its economic assessment on July 21; this has spurred speculation the update will prepare the ground for a rate cut in Aug.
• At its June meeting, RBNZ said the exchange rate was higher than appropriate given low export commodity prices and, along with weak overseas inflation, was holding down tradables inflation
• Breach of NZD/USD’s bull trend may see the FX pair test support at 0.6964, the June 15 low, in medium-term
• Slow stochastics have turned bearish with %D reading of 60 and falling
• NOTE: Lower rates by themselves are no guarantee of a weaker exchange rate; RBNZ has eased by 125 bps since mid-2015, but the kiwi has risen 2.3% on a trade-weighted basis during that time
• NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.