NZD/USD forms a bearish flag ahead of the RBNZ rate decision

The NZD/USD exchange rate slipped for the second straight day as traders reflected on the rising US bond yields and the upcoming RBNZ decision. The pair retreated to a low of 0.5893, a few points below last week’s high of 0.6055.

The NZD/USD pair continued its sell-off as concerns about the American economy continued. As I wrote before, US bond yields continued surging on Tuesday. The 10-year bond yield jumped to the 2007 high of 4.7% while the 30-year yield jumped to 4.8%.

The yield curve has plunged to the lowest level in decades, leading to heightened concerns of an impending recession. This happened as the Federal Reserve maintained its hawkish stance as inflation bounced back.

The most recent data showed that the headline consumer price index (CPI) rose to 3.7% in August while core CPI fell to 4.2%. Inflation in the services industry has been quite high. This inflationary trend will likely continue as the price of crude oil jumps.

The next key catalyst for the NZD/USD price will be the upcoming RBNZ decision. Economists believe that the central bank will decide to leave rates unchanged at 5.50%.

The most recent data showed that New Zealand’s inflation remained above 6% in the second quarter. That was a bigger number than the RBNZ’s target of 2.0%. In a recent statement, Governor Adrian Orr lamented that core inflation remained too high.

Additional data revealed that the country is emerging from a recession. It expanded by 0.9% in the second quarter, better than the median estimate of 0.5%. Annual growth stood at 1.8% and analysts expect the rising immigration will help to boost the economy.

The NZD/USD pair has been in a strong downward trend in the past few weeks. It retreated to a low of 0.5887, lower than last week’s high of 0.6042. It has moved below the 50-period moving average and the resistance level at 0.5982, the lowest level on May 31st. 

The pair has also formed a bearish flag pattern, which is a bearish sign. Therefore, the pair will likely have a bearish breakout as sellers target the key support at 0.5800. The stop-loss of this view will be at 0.5985.

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