Track market-moving stories before they get noisy

Headline inflation beats, underlying pressures easing Tradables prices undershoot RBNZ's forecast September RBNZ hike likely, longer-term pricing looks excessive NZD/USD bulls retain technical advantage above support AUD/NZD breakdown keeps sellers firmly in control A beat, but with important caveats New Zealand consumer prices rose 1.5% in the June quarter, lifting the annual inflation rate to 4.1%. While that was above the 4.0% increase expected by economists, it fell just short of the Reserve Bank of New Zealand's 4.2% forecast released in May.

That suggests inflation remains uncomfortably high and is likely to keep the RBNZ on course to tighten policy further. However, the underlying details were more encouraging, with the broadest measure of core inflation easing further and domestic price pressures evolving broadly as the central bank had anticipated.

The composition of the report was arguably more important than the headline. While annual inflation accelerated, much of the increase reflected higher tradeable prices, which are influenced by developments offshore rather than domestic demand.

Source: FOREX.com, RBNZ, StatsNZ

Tradeable inflation accelerated to 4.9% over the year, driven largely by a 27.5% jump in petrol prices and a 71.0% surge in other vehicle fuels and lubricants. However, that was well below the RBNZ's 5.6% forecast, explaining why headline inflation also undershot the central bank's expectations.

By contrast, non-tradeable inflation, which is viewed as a better gauge of domestically generated price pressures, eased to 3.4% and matched the RBNZ's forecast. Electricity and local authority rates provided the largest upward pressure, while lower real estate services prices helped offset some of the increase.

The broadest measure of underlying inflation, CPI excluding the food group, household energy subgroup and vehicle fuels, also continued to ease, slipping to 2.5% from 2.6%. While it remains in the upper half of the RBNZ's 1–3% target band, the continued moderation suggests underlying inflation pressures are still moving in the right direction rather than becoming more entrenched.

Traders should now watch the release of the RBNZ's Sectoral Factor Model at 3pm Wellington time. The measure, which strips out temporary price movements to provide another gauge of underlying inflation, printed at 2.7% in the March quarter and could influence moves in New Zealand financial markets should it deliver a meaningful surprise.

What it means for the RBNZ

Source: Bloomberg

When all said and done, today's report is unlikely to materially alter the RBNZ's near-term thinking. Inflation remains above target and the central bank has already adopted an explicit tightening bias. Another 25 basis point increase in September still looks very likely and is close to fully priced, with the risk of a second move by October also deemed slightly more likely than not ahead of November's general election.

Further out, though, market pricing looks far too punchy. Overnight index swaps continue to imply close to five additional quarter-point increases by May next year, taking the OCR to around 3.75%.

That profile looks too aggressive given the broader economic backdrop. While inflation remains high, underlying price pressures continue to ease and there is still ample slack in the labour market, with little evidence that wage growth is accelerating in a way that would warrant taking policy deep into restrictive territory.

The next major test for that view will come on 13 August, when the RBNZ releases its latest Survey of Expectations. Of particular interest will be the two-year inflation expectations measure, which climbed to 2.53% in May from 2.37% previously.

Another meaningful acceleration would strengthen the case for additional tightening, potentially even a 50 basis point move, which can't be ruled out given some of the hawkish rhetoric from external members of the Monetary Policy Committee. But if inflation expectations fail to accelerate again, it would cast doubt on the degree of tightening currently priced into the OIS curve.

At face value, today's report may be interpreted as hawkish given headline inflation exceeded economists' forecasts. I'm not convinced that's the right read. The underlying detail tells a different story, particularly with the broadest measure of core inflation continuing to ease and tradables inflation coming in well below the RBNZ's own forecast.

That's just one of several factors to consider when assessing directional risk for the Kiwi dollar. While domestic rates remain an important driver, recent price action has also become increasingly sensitive to broader risk appetite and changes in US interest rate expectations. Starting with NZD/USD, here's how the technical picture stacks up.

The battleground for Kiwi bulls

Source: TradingView

The RBNZ's hawkish tilt has helped support NZD/USD over recent weeks, allowing the pair to reclaim a cluster of key medium and long-term moving averages.

For now, though, it's a game of ping-pong. Buyers continue to emerge on dips towards the 100-day moving average, while rallies are being capped ahead of resistance at 0.5860. That's the initial range to watch.

The oscillators continue to favour the bulls. RSI (14) remains comfortably above the neutral 50 level at 63, while MACD has crossed above its signal line and remains in positive territory.

Should the pair break decisively above 0.5860, the next upside level to watch is 0.5920, an area that repeatedly acted as both support and resistance during April, May and June. Above that, attention shifts to 0.5992, the double top established earlier this year.

On the downside, initial support is provided by the 100, 200 and 50-day moving averages, along with horizontal support at 0.5796, another level that has repeatedly acted as both support and resistance in recent weeks. A break beneath the latter could open the door for a retracement towards 0.5747, with 0.5724 and the uptrend from the June lows the next levels to watch.

Breakdown keeps bears in control

Source: TradingView

As flagged earlier this month, AUD/NZD has broken below the uptrend from the June 2025 lows, with the pair also slipping beneath the 50 and 100-day moving averages. Along the way, it took out support at 1.2053 and 1.2000 before finding buyers at 1.1950.

For now, the pair is stuck in a narrow range between 1.2000 and 1.1950. We did see a bullish engulfing candle print on Monday following renewed upside in energy prices as the conflict in the Middle East escalated. However, that has not generated follow-through buying, with rallies continuing to stall ahead of 1.2000.

The message from the oscillators remains bearish. RSI (14) continues to set lower highs and sits well below the neutral 50 level at 33. That bearish message is being reinforced by MACD, which remains below its signal line and in negative territory.

Selling rallies and downside breaks remains the preferred strategy. Should the pair break decisively beneath 1.1950, there is little in the way of technical support until the 200-day moving average at 1.1835, followed by 1.1797, former resistance before February's upside breakout.

Should the pair reclaim 1.2000, the next upside levels to watch are 1.2053, followed by the confluence of the 100-day moving average and resistance at 1.2115. For now, though, selling rallies and downside breaks remains the preferred strategy.

From a fundamental perspective, with New Zealand's inflation report now out of the way, attention will quickly shift to Australia's labour force report on Thursday. Alongside broader risk sentiment, the release is likely to be influential on markets' assessment of the directional risks for the RBA cash rate moving forward.

Manufacturing survey delivers blockbuster upside surprise RBNZ tightening cycle gains fresh credibility RBA rate expectations continue to unwind AUD/NZD technical breakdown gains momentum NZD/USD breakout shifts focus higher New Zealand may be on holiday, but the Kiwi dollar certainly wasn't on Thursday. It topped the G10 FX leaderboard after strong data reinforced the RBNZ's message from earlier this week that further rate hikes are likely.

Factory floor fires up The catalyst for the outperformance was a blockbuster BNZ PMI. The headline index surged to 59.7 in June, its highest reading since July 2021. Excluding the pandemic rebound, it was the strongest result since May 2017, underpinned by a sharp lift in new orders, production, deliveries and employment. Respondents reported stronger sales, growing order books and renewed confidence, outweighing concerns about Middle East tensions and cost-of-living pressures.

A hawkish roadmap The survey's release was timely, arriving just days after the RBNZ lifted its cash rate to 2.5%, the first increase of a new tightening cycle. Policymakers retained a hawkish bias, saying "some further reduction in monetary stimulus is likely to be required" to return inflation sustainably to the 2% target midpoint.

Speaking after the decision, RBNZ Governor Anna Breman said they were "feeling our way" as they sought to identify New Zealand's neutral cash rate, the level where it is neither stimulatory nor restrictive on economic activity. She suggested it may sit somewhere between 2.5% and 3.5%, implying 3% may be the Bank's initial destination for policy.

Mind the gap That’s important because relative rate expectations have long been one of the key macro drivers for AUD/NZD, making recent shifts in pricing on either side of the Tasman particularly important.

Source: Bloomberg

While the RBNZ has just embarked on a fresh tightening cycle, the RBA is likely much closer to the end of its own, or perhaps already there, after lifting its cash rate three times, unwinding the easing conducted in 2025. Although it has left the door open to further increases, softer domestic economic data and easing energy prices have seen markets scale back expectations for additional tightening. Just a few months ago, traders were flirting with the idea that the cash rate may need to near 5%. Today, there's only around an even chance of another 25 basis point increase to 4.60%.

Source: Tradingview

Thursday's data saw the Australia-New Zealand two-year yield spread compress by 14 basis points, the largest one-day decline since March 9. While the catalyst was New Zealand's stronger-than-expected manufacturing PMI, the broader narrowing in spreads has been driven just as much by the steady unwinding of hawkish RBA pricing over recent months.

Connecting the dots The rates relationship is evident in the correlation matrix below, with Australia-New Zealand two-year yield spreads maintaining a consistently positive correlation with AUD/NZD across the past week, month and quarter.

Source: Tradingview

Energy prices have also been somewhat influential. While both Australia and New Zealand are heavily reliant on imported petroleum, Australia is also one of the world's largest LNG exporters. It's perhaps no surprise then that AUD/NZD has also maintained a strong positive correlation with LNG prices over the past month, particularly over the past week, reflecting the terms of trade impact of fluctuations in gas prices on the Australian dollar.

AUD/NZD trendline snaps

Source: Tradingview

It's not only fundamentals that are pointing to the risk of Kiwi outperformance against the Australian dollar, with the technical picture increasingly aligning with that view. Thursday saw AUD/NZD break below its June 2025 uptrend, doing so emphatically while also slicing through the 100-day moving average, a level it had remained above since July last year.

The breakdown follows the formation of a series of lower highs and the completion of what resembles an evening star bearish reversal after the pair spent several sessions flirting with the 50-day moving average earlier this week. The question now is whether Thursday's breakdown attracts another wave of selling on Friday.

The immediate focus is the June 10 low at 1.2053. Should that give way, attention shifts to 1.2000, a level that's repeatedly acted as both support and resistance in recent months, followed by 1.1950. Below that sits the 23.6% Fibonacci retracement of the May 2025-June 2026 bull move, a level the pair also spent considerable time trading around back in March. The 200-day moving average at 1.1813, sitting just above the former breakout level at 1.1797, shapes as a more ambitious downside target.

Overhead, the broken June 2025 uptrend and 100-day moving average, located just below 1.2100, combine with horizontal resistance at 1.2115 to create an important resistance zone should buyers attempt to regain control.

Momentum indicators continue to favour the bears. RSI (14) is trending lower below 50 without yet reaching oversold territory, while MACD has crossed below its signal line and continues to diverge in negative territory, favouring selling into strength and downside breaks.

NZD/USD triangle delivers

Source: Tradingview

There are also signs the improving backdrop is beginning to spill over into NZD/USD. As noted yesterday, the pair was threatening to break higher from an ascending triangle, a move that's since played out through the European and North American sessions.

The breakout shifts the focus to 0.5774, a level that's repeatedly acted as both support and resistance this year. A sustained move above there would bring a cluster of key moving averages into view, starting with the 50-day moving average at 0.5815. While the 50-day moving average has recently crossed below the 200-day moving average, completing a death cross, that signal is being overridden by the improving fundamental backdrop and recent price action. Should that view prove misplaced and a retracement unfold, the former breakout level at 0.5724 is the first area to watch for support.

Momentum indicators point to the potential for further gains. RSI (14) continues to trend higher and has reclaimed the neutral 50 level, while MACD has completed a bullish crossover. Although it remains below zero, it's continuing to push higher, suggesting the bearish momentum that dragged NZD/USD to fresh 2026 lows in late June has dissipated and may be in the early stages of reversing, pointing to the potential for an extension of Thursday's breakout.