NZDUSD Medium Term Trade

NZDUSD Holding Wkly  Support Pivot @ 0.81246
Next best price on dip I will be looking to go Long

Nzdusd Updated view


Release: NZ CPI q/q (1Q)
Consensus Forecast: 0.6%
Previous: -0.3%

Date/Time: 04/18/12 6:45PM EDT (22:45 GMT)

Will Inflation Data Act As a Catalyst for NZD?

The upcoming first quarter CPI inflation data is not expected to be a blow-out affair.

After declining 0.3% in the fourth quarter inflation is expected to rebound the modest 0.6%, a faster pace than in the 3Q, but below the pace seen the previous 4 quarters.

A rise of 0.6% on the quarter should actually see prices in annual terms fall to 1.6% from the 1.8% reading seen in the 4Q. That is well within the RBNZ inflation target between 1% and 3%, and is actually at the lower end of that target. It’s also far below the heightened inflation readings seen most of last year. Therefore, at the current moment inflation is not a big concern for the central bank and expectations around interest-rate increase from the RBNZ this year are muted (overnight index swaps are pricing in 14 basis points of increases over the next 12 months).

NZD/USD – Positive or Negative Surprise Could Give Kiwi Some Direction

In order to make it interesting, and to create some trading opportunity for NZD pairs I am looking to see if the there is a positive or negative surprise in CPI which could help be a catalyst for some moves for the Kiwi.
A reading that pushes prices above 2% annually for instance would be a positive surprise to the market and would warrant a reaction. If on the other hand we see prices coming in weaker than expected – a quarterly change below 0.5%, and an annual rate below 1.5% – that would likely undermine the fundamental case for the NZD.

The NZD/USD pair has been trading sideways for the last 6 and 1/2 weeks, thought it managed to push to a a 6-week high near 0.8315 last week where it was rejected at the 61.8% retracement of the downswing seen in late February-early March. To the downside, the pair has been capped at 0.8055 over that span, and has not fallen below 0.8120 during the last three weeks. Again, very ranging conditions.
A negative surprise, one in which inflation is even more muted than the status quo expectation could give the pair a reason to head down towards its lows from the previous 3 weeks near 0.8120 at which point we’ll see if there is enough momentum to break that level and target 0.8055.
Earlier in the week, food prices showed a 1.0% decline for the 1Q, which points to a negative surprise as the more probable outcome.
A positive surprise on the other hand, one showing inflation pressure picking up, could see the pair begin an ascent towards the 0.8230 area, our highs from earlier this week.
Now, the NZD/USD is beholden to general risk sentiment, and sentiment was generally weak today, but an important fundamental release like the quarterly CPI data could just be the catalyst needed to spark a move one way or another. Still, with the sideways action of late, we shouldn’t expect a an out-sized move one way or the other.

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