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Pound Stays Firm, Kiwi Mixed As Inflation Data Mixed -

May, 17th 10:08

The Reverse Bank of New Zealand (RBNZ) on Monday released its quarterly survey of inflation expectations with no immediately bright signals. Data for the quarter ending in April 2016 showed that economists’ estimation for inflation over the next 24 months still lingered around 1.6%, a 22-year record low. The recent readings haven’t provided any clues on probability that the NZ inflation rate can stabilize near the 2% target, in both the short-term and medium-term.

Facing the slowing pace of economic growth, the central bank is required to deploy further monetary easing to bolster inflation. The next rate cut is likely to be carried out soon, which in turn could weaken the Kiwi against other currencies.

In the UK, data from the Office for National Statistics indicated that instead of continuing a 0.5% rise, as in the previous month, the consumer prices index (CPI) for April just inched up 0.3%. The decline in air fares and clothing prices were supposed to be the main reason for the slower pace of the index. The core CPI, which excludes food, energy, alcohol and tobacco, also did not meet economists’ forecast, rising by 1.2% only while the reading in March was 1.5%. All data are on year-on-year basis.

Also released today, input prices from UK manufacturing sector reported a drop of 6.5% in April, compared with a year earlier. In the month prior, this index fell by 6.1%(from a year ago). After eliminating purchases in food, beverage, tobacco and petroleum industries, core input prices slid 1.7% for the 12-month period ending in April 2016, compared with a decrease of 2.7% in March. Sterling is under continuous threat of weakening due to negative signals from British economic growth.

However, the pound has been supported by  the results of UK poll yesterday showing that there were more people supporting continued membership of the European Union than those opting to leave.

NZDUSD

Fig. GBPNZD D1 Technical Chart

The DI+ reading currently is at 22.5149, far higher than the DI- reading, firmly suggesting a long position. ADX (14) stands at 33.4095, also showing a solid uptrend. Sterling is expected to strengthen against the kiwi, leading the pair GBPNZD to retest the resistance of 2.15030 formed on March 14. A breakout is highly expected as bulls are still encouraged by the green parabolics band moving below the prices.

Trade suggestion

Buy Digital Call Option at 2.12775 valid until May 20, 2016

Buy Digital Put Option at 2.14813 valid until May 20, 2016.

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