New Zealand Inflation Expectations: Implications for NZDUSD

The NZDUSD will be the cynosure of attention as the New Zealand inflation expectation is released at 3 am GMT. New Zealand’s recently released jobs report showed that employment grew 1.6% on an annualized basis as against the market consensus of 0.7%. Average hourly earnings rose 1.4% quarter-on-quarter, which trumped the market expectation of a 0.9% growth.
Despite these figures which seem to show that New Zealand’s workplace has escaped relatively unscathed from the coronavirus headwinds that its peers are battling with, the New Zealand Dollar continues to struggle to gain traction against the US Dollar and Aussie Dollar and rightly so.

Yes, people are going back to work, but things are different. Restrictions remain in place for the construction and hospitality industries, and international travel restrictions remain in force. There is ample data to show that many businesses have shut down, while those still standing are deploying cost-cutting measures and reducing investments to stay afloat. There is evidence that New Zealand’s economy has suffered an economic downturn, which is expected to weigh heavily on inflation expectations.

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Trading the NZDUSD

A drop in the inflation expectations below 1.9% could be bearish for the New Zealand Dollar. Technical setups will support this viewpoint, as the NZDUSD is currently trading in a bearish pennant on the daily chart. In the past five days of trading, the NZDUSD has suffered losses in 4 sessions. Today’s daily candle just a rejection from the 0.60646 resistance, following yesterday’s pinbar which pushed out slightly below the pennant. Today’s decline has begun to ask questions as to the integrity of the pennant’s lower border, and a lower than expected reading on the inflation expectations could be all this move is waiting for. 

A breakdown targets the 0.59865 support, and could potentially challenge further support areas at 0.59049 and 0.58422. The low of 26 March at 0.57765 is yet another possible support target.

On the flip side, if the inflation expectation is higher than 1.93%, this could provide some uplift for the pair, taking it above 0.60464 and providing an impetus for a move towards 0.62347. Attainment of this resistance target is required to invalidate the pennant pattern.

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