July 16, 2021 8:43:07

The standout major currency performer today is NZD on the back of sizzling inflation data overnight which accelerated to 3.3% in the second quarter this year. This beat market expectations of 2.7% and was up from the prior 1.5% in Q1. The fastest inflation since 2011 is viewed as temporary by the RBNZ but it comes days after the bank took a hawkish turn by surprisingly stopping its bond buying programme with almost immediate effect.

Although this is actually much less tightening that it has already delivered, the message is clear – the RBNZ is an activist central bank and at the front of the queue to hike rates. Many banks now expect the first rise in August, though the jobs report on 4 August is arguably the key report for policymakers. A continued fall in the unemployment rate along with a lift in wage inflation could seal the deal.

AUD/NZD hits five-month lows

AUD/NZD is good pair to play on kiwi strength (and central bank divergence) and in many ways better than NZD/USD where the Fed stays in charge, so it is probably more risky to chase the major. Prices dropped to a multi-month low in AUD/NZD at 1.0558 earlier today but have pulled back near to the May lows and a Fib level of the December to May move at 1.0620.

The February trough at 1.0540 and a Fib level at 1.0531 is a key target for the kiwi bulls if we get a soft weekly close. The daily RSI is overbought so some consolidation may not be a bad thing if these conditions ease. It could then set the scene for more downside towards the December low at 1.0418. Put stops above yesterday’s spike high on the bearsih pinbar candle at above 1.0660.