- Raiko Shareef, Bank of New Zealand currency strategist
The NZD/USD currency pair bounced back from monthly PP at 0.8654 and was trading close to weekly pivot around 0.8726 at the beginning of this week. The Kiwi received another bullish signal from a report from the Statistics New Zealand, which showed strong immigration flows for the month of June, bolstering the case the central bank should raise interest rates further this week. Monthly net migration advanced to a new decade-high of 4,270, while annual immigration is moving closer to 38,335 in June. One of the main reasons behind stronger migration was a deteriorating labour market in Australia, and with the situation in the job market expected not to improve decisively before the end of this year, the migration dynamic is likely to remain the same, pushing the inflation rate higher and adding more pressure on the RBNZ. The RBNZ Observer is betting on another rate hike later this week, expecting the official cash to reach 3.50%. However, there are concerns that the Kiwi is moving to its highs for the year, as the possibility the central bank will take a pause in the coming months is increasingly high. Falling commodity prices, especially for dairy and logs, as well as softer inflationary pressure may prompt Graeme Wheeler to take his foot of the brake this month. Additionally, the Kiwi is now significantly stronger than the RBNZ wants, therefore policymakers can cite the strength of domestic currency as the main reason to stay pat. In this case NZD/USD heads towards 0.8654 and 0.8553.
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