NZD/USD forms H&S ahead of RBNZ interest rate decision

The NZD/USD pair declined during the Asian session as worries of US inflation pushed the US dollar higher. The pair dropped to 0.7166, which was 0.80% below the highest level on Friday.

New Zealand retail sales

New Zealand’s economy is having a robust recovery after slumping sharply in 2020 amid the global pandemic. Last week, the country revealed that the consumer price index (CPI) rose at a faster pace in the first quarter. 

Today, data by Statistics New Zealand revealed that the country’s retail sales did relatively well in the first quarter. In general, sales rose to 2.5% after falling by 2.7% in the fourth quarter. This growth led to a year-on-year increase of 6.8%, which is modestly better than the previous quarter’s increase of 4.8%. At the same time, core retail sales rose by 3.2% after falling by 2.9% in the previous quarter.

The strong performance of retail sales was due to electronic items and recreational goods that rose by 8.4% and 16%, respectively. This was a modest recovery after the two industries declined by 0.3% and 14%, respectively. Other industries that did well were motor vehicles, hardware, and garden supplies. Their increases were offset by a decline in fuel retailing and accommodation.

Later this week, the NZD/USD pair will react to the important Reserve Bank of New Zealand (RBNZ) interest rate decision that is scheduled for Wednesday. The bank is expected to leave interest rates unchanged and possibly sound more hawkish because of the strength of the country’s economy. The pair will also react to the latest New Zealand trade numbers.

The NZD/USD will also react to the important GDP data from the United States that will come out on Thursday and the personal consumption expenditure (PCE) data scheduled for Friday this week.

NZD/USD forecast

The four-hour chart shows that the NZD/USD pair formed a head and shoulders pattern, which is usually a bearish signal. The pair also moved below the 25-day and 15-day exponential moving averages (EMA) while the MACD indicator has moved below the neutral line. The pair is also hovering slightly below the 38.2% Fibonacci retracement level. Therefore, the pair may keep falling ahead of the RBNZ decision later this week. If this happens, the next key level to watch will be the 50% retracement at 0.7125.