New Zealand inflation slows

New Zealand's inflation rate slowed in the first quarter more than expected. This indicates the RBNZ may soon end its rate-tightening cycle. The annual inflation rate fell to 6.7% from 7.2% in the previous quarter, but the central bank is still expected to increase its Official Cash Rate by another 25 points to 5.5% in May. However, persistently high inflation remains a concern, and the rapid increase in borrowing costs may drive the country into recession this year. Food and housing were the biggest contributors to the annual inflation rate.

USOIL is breaking below the 79.37 support level even though some oil market analysts expect strong global oil demand growth in 2023. The assumption is that China's economic rebound in the second half of the year will drive the demand higher. This is the first time oil trades below the 79.37 level after the OPEC+ production cuts gapped the market higher by four dollars.

There are demand growth expectations for this year but the other side of the coin is that if the Fed keeps on hiking rates recession fears would increase and could drive the price of oil lower, at least in the short term. The Fed’s actions usually have a ripple effect on global financial markets, which can in turn impact the decisions made by other central banks. Therefore the central banks tend to follow the Fed and the rates are likely to go up globally if the Fed stays hawkish. The recessionary impact of higher financing costs globally would be likely to slow down global economic growth and decrease the demand for oil.

Equity indices remained pretty much flat yesterday even though quite a few companies beat analysts' earnings expectations. The yield on the 10-year Treasury note in bond markets edged up from 3.571% on Tuesday to 3.601%. This pressured gold that broke the 1981 support but only briefly and the market is once again trading above this support level.

NZDUSD

NZDUSD is bearish below 0.6224. Above the level, the market could trade to 0.6300 or so. The pair is drifting lower after the lower-than-expected CPI reading and could well test the March low at 0.6084. Other support and resistance levels to pay attention to are 0.6140 and 0.6315.

USOIL

USOIL is bearish below 81.50. Above the level, the market would be likely to trade to 82.50. If the weakness continues the market probably to the 50% Fibonacci retracement level (74.40). This is a measure move target given by the range width above the 79.37 support level.

USDCAD

USDCAD rallies as the price of oil falls. The market has penetrated the 23.6 retracement level and is currently trying to break out of a descending trend channel. The fact that the market was strong enough clear the 1.3405 resistance is encouraging for the longs but as always we need to see the market creating higher swing lows in order to have faith in the bulls. The nearest key price levels are 1.3300, 1.3360, 1.3420 and 1.3553.

USDJPY

USDJPY continues to trend higher with the nearest key support at 132. If the level is tested and buyers emerge we might see a bounce to 135 and then to 135.80 on extension. If the 132 level doesn’t hold, look for a move to 133.20. Note, however, that the channel top is fairly close to the current market price. This is a risk factor for the USD longs.

The Next Main Risk Events

• USD Unemployment Claims
• USD Philly Fed Manufacturing Index
• USD Existing Home Sales
• CAD BOC Gov Macklem Speaks
• USD FOMC Member Waller Speaks
• USD FOMC Member Harker Speaks
• GBP Retail Sales m/m
• EUR French Flash Manufacturing PMI
• EUR French Flash Services PMI
• EUR German Flash Manufacturing PMI
• EUR German Flash Services PMI
• EUR Flash Manufacturing PMI
• EUR Flash Services PMI
• GBP Flash Manufacturing PMI
• GBP Flash Services PMI
• CAD Core Retail Sales m/m
• CAD Retail Sales m/m
• USD Flash Manufacturing PMI
• USD Flash Services PMI

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

DISCLAIMER: TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

Janne Muta

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