The NZD/USD exchange rate held steady this week as market participants focused on the potential divergence between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve. It rose to the key resistance level at 0.600, up from this month's low of 0.5935.
RBNZ and Federal Reserve Divergence
The NZD/USD pair held steady and is up by 7.53% from its lowest level in November last year. This rally is because of the broader US dollar sell-off and the potential RBA and Federal Reserve divergence.
Recent macro data showed that New Zealand’s inflation has been in a strong upward trajectory in the past few months. It rose to 3.1% in the fourth quarter, moving further away from RBNZ’s target of 2.0%.
New Zealand’s inflation has been in a steady increase in the past few quarters. It moved from 2.5% in the first quarter of last year and then rose to 2.7% in the second quarter and 3% in Q3.
Core inflation, which excludes the volatile food and energy prices, rose to 3.2% in the fourth quarter from the previous 3.1%. Inflation has remained above 2%.
Therefore, most analysts believe that the RBNZ will start hiking interest rates in the coming meetings. Such a move will be a reversal from what the banks has been doing in the past two years. It has slashed interest rates from 5.25% in 2024 to the current 2.25%.
On the other hand, analysts believe that the Federal Reserve will start cutting interest rates later this year as inflation retreats. The most recent data showed that the headline Consumer Price Index retreated from 2.7% in December to 2.4% in January.
NZD/USD Technical Analysis
The daily timeframe chart shows that the NZD/USD exchange rate has rebounded in the past few months, moving from a low of 0.5575 in November to the current 0.6000.
It has remained above the 50-day Exponential Moving Average (EMA). It has formed a bullish flag pattern, which is made up of a vertical line and a descending channel. It is now in the channel section.
The pair has also formed a cup-and-handle pattern, and is now in the handle section. It has also moved above the Supertrend indicator.
Therefore, the pair will likely resume the uptrend, potentially to the key resistance level at 0.6116, its highest level in July last year.