Fundamental Forecast: Bullish
NZD/JPY Close Above 89.50 to Raise Scope for Higher-High
Chinese CPI, PPI Figures Fail to Excite Currency Markets Overnight
The NZD/USD remains at risk of marking fresh record-highs ahead of the next Reserve Bank of New Zealand (RBNZ) policy meeting on July 23 as the economic docket is expected to show heightening price pressures across the region.
Indeed, the headline reading for New Zealand inflation is expected to
increase an annualized 1.8% in the second-quarter, which would mark the
fastest pace of growth since the last three-months of 2011, and
heightening price pressures may generate a further advance in the
exchange rate as it fuels interest rate expectations. According to
Credit Suisse overnight index swaps, market participants are pricing a
90% chance for another 25bp rate hike in July, but we may see the RBNZ
take a more aggressive approach in normalizing monetary policy as the
stronger recovery raises the risk for inflation.
RBNZ Assistant Governor John McDermott warned that the central bank
will aim for ‘low and stable inflation’ as the central bank raises its
outlook for growth, and the stronger recovery should continue to
heighten the appeal of the New Zealand dollar, especially as Fitch
Ratings raising its credit rating outlook for the region. With that
said, the positive developments coming out of the region may continue
to limit the downside risk for the NZD/USD, and we may see the RBNZ do
little to halt the advance in the local currency as it helps the
central bank to achieve price stability.
As a result, we will retain a bullish outlook for the NZD/USD as it
approaches the 2011 high (0.8841), and we will continue to look for
opportunities to ‘buy dips’ ahead of the RBNZ interest rate decision
should the inflation report further boost interest rate expectations.
