New Zealand's annual inflation rate climbed to 4.1% in the second quarter, its highest reading in more than two years and above the 4.0% consensus forecast. The New Zealand dollar's gains proved short-lived as tensions between the US and Iran drove safe-haven demand for the US dollar. NZD/USD has since broken below its late-June trendline and moved on to test 0.5810.
The support stronger-than-forecast New Zealand inflation gave the New Zealand dollar proved short-lived. Escalating tensions between the US and Iran boosted demand for the US dollar as a safe-haven asset, causing the New Zealand dollar to surrender part of its recent gains during the second half of the week.
Inflation runs above the consensus forecast
Stats NZ reported an acceleration in inflation on 21 July: the Consumer Price Index rose 1.5% in the second quarter. The annual rate climbed to 4.1%, its highest level in more than two years and slightly above analysts' consensus forecast of 4.0%.
Higher fuel prices amid tensions in the Middle East drove the increase primarily. That print followed the Reserve Bank of New Zealand's decision to raise the official cash rate to 2.50% on 8 July, reinforcing expectations of further monetary tightening in September.
NZD/USD breaks its June trendline
On the four-hour chart, the pair had been developing a short-term uptrend since 26 June, advancing towards 0.5870, where resistance emerged. It then broke below the trendline, fell beneath the lower boundary of the current market profile and declined to the 0.5765 area, where the green support level now sits.
After rebounding from that zone, the pair moved on to test the lower boundary of the market profile at 0.5810. If that level holds and price turns lower, the green support at 0.5765 could provide support; should the pair continue to rise, attention may return to the POC area at 0.5840.
Momentum readings question the breakout
Above the market, the upper boundary of the market profile at 0.5860 sits close to the red resistance zone at 0.5870, making this a potentially strong resistance area. The RSI + MAs indicator currently reads 46, 37 and 46.
Yet the slower moving average has yet to leave the neutral zone, and the RSI briefly entered oversold territory before returning to neutral, casting doubt on the strength of the current breakout. The pair's near-term direction will likely depend on whether sellers can defend the lower boundary of the market profile.
Source: ActionForex
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