New Zealand Dollar Forecast: NZD/USD Eyes Q1 GDP, FOMC After Downbeat PSI

• New Zealand Q1 GDP data in focus as global trade reopens further

• NZD/USD finds itself at multi-month support zone. Where to next？

• Asia Pacific markets look to Federal Reserve meeting for direction

Asia Pacific markets may stay under pressure this week if US Dollar strength proves resilient. That appears likely as economists and traders continue to move up the timeline on monetary policy tightening. The Federal Reserve’s rate decision due out Wednesday is the main event risk for global markets in the week ahead.

US Inflation figures (the Consumer Price Index, or CPI) came in hotter than expected last week. The US Dollar rose nearly half a percent, as tracked by the DXY index. That is despite some cooling off in Treasury yields after the bond market faded the initial reaction to the CPI report. Markets appear to now be buying into the premise that inflation is a temporary phenomenon, something the Fed has harped on repeatedly in recent months.

Risk-sensitive currencies fell against the stronger Greenback. The New Zealand Dollar had a particularly downbeat week as local government bond yields fell. The benchmark 10-year rate fell near 11%. Rising milk prices – New Zealands top export – failed to underpin the currency, suggesting traders are more focused on monetary policy expectations right now.

BusinessNZ‘s May Performance of Services Index (PSI) crossed the wires this morning at 56.1 versus 61.2 in April, according to the DailyFX Economic Calendar. The above-50 reading marks the third consecutive month of growth in the island nation’s service sector, albeit at a slower pace. As with last month, supply chain pressures were highlighted in the report. “The general lack of international tourism and education” were also highlighted as pain points.

Later this week, New Zealand‘s first-quarter gross domestic product (GDP) data will cross the wires. An upbeat figure echoing generally positive data flow relative to baseline forecasts in recent weeks (today’s PSI print notwithstanding) may spur some hawkish drift in the Reserve Bank of New Zealand (RBNZ) policy outlook. On the fiscal side, Finance Minister Grant Robertson spoke about a better-than-expected recovery and highlighted stepped-up efforts to fight income inequality.

The New Zealand Dollar has fallen to an area of support from mid-April after putting in a multi-month high in May. NZD/USDs technical position appears weak at the current level, with a potential bearish Simple Moving Average (SMA) crossover on the horizon, which could add additional overhead weight to the currency pair.

A move higher would face a descending trendline from the May swing high. To the downside, a former area of support directly above the psychologically important 0.7000 area could be a downside target for bears, with the 100-day SMA as possible intermediate support.

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