The NZD/USD price was little changed after the latest New Zealand annual budget and FOMC minutes. The pair is trading at 0.7180, which is 1.27% below this week’s high of 0.7270.
New Zealand budget
New Zealand has done modestly well during the coronavirus pandemic. The country has only reported 25 deaths, which is a good number considering that other countries reported thousands of deaths. Yesterday, data by the government showed that the producer price index (PPI) bounced back in the first quarter. PPI input rose from 0.1% in the fourth quarter to 2.1% in the first quarter. In the same period, the PPI output rose by 1.2%.
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New Zealand’s government also expects the economy to have a stronger recovery. In its budget today the government said that the economy will rise by 2.9% this year and by 4.4% in the coming year. The government also expects that its trade deficit will decline to $13.2 billion in 2013.
In its budget, the government expects to boost its social welfare spending as it intends to lift thousands of people from poverty. It also expects to boost its infrastructure spending to N$57.3 billion, with more than N$11.6 billion going to housing. The government expects its house-price inflation will slow down to 0.9%. It also expects that the unemployment rate will drop to 4.2% in 2024 from the current 4.7%.
These numbers are important for the NZD/USD pair because they imply that the RBNZ will likely turn hawkish since the economy is doing better than expected. In the recent rate decision, the bank left interest rates unchanged and continued with the large-scale asset purchases.
The NZD/USD is also reacting to the latest FOMC minutes. The minutes showed that the Fed officials have started talking about hiking interest rates as the economy recovers. Later today, it will react to the initial and continuing jobless claims numbers.
NZD/USD analysis
The four-hour chart shows that the NZD/USD pair declined slightly after the latest FOMC minutes and New Zealand budget. The pair has formed a head and shoulders pattern whose neckline is at 0.7137. The price has moved below the 25-day and 50-day exponential moving averages (EMA). The Relative Strength Index (RSI) has also dropped to 40. Therefore, the pair may drop below the important support at 0.700 in the medium term since the H&S pattern is usually a bearish sign.
