On 21 July, Stats NZ reported an acceleration in inflation. The Consumer Price Index rose 1.5% in the second quarter, while the annual inflation rate increased to 4.1%, its highest level in more than two years and slightly above analysts’ consensus forecast of 4.0%. The increase was driven mainly by higher fuel prices amid tensions in the Middle East.

The data came after the Reserve Bank of New Zealand raised the official cash rate to 2.50% on 8 July, reinforcing expectations of further monetary tightening in September. However, the effect was short-lived. Escalating tensions between the US and Iran increased demand for the US dollar as a safe-haven asset, and the New Zealand dollar gave back part of its recent gains in the second half of the week.

That combination matters for NZD/USD because it leaves the pair balancing a domestic inflation backdrop that can support tighter policy against a stronger dollar environment that can quickly offset that support, especially when global risk sentiment shifts.

Technical Outlook

On the four-hour chart, NZD/USD has been forming a short-term uptrend since 26 June, with a trendline developing as the pair advanced toward 0.5870, where resistance appeared. The pair then broke below that trendline, moved beneath the lower boundary of the current market profile, and fell to the 0.5765 area, where the green support level is now located. After rebounding from this zone, the pair tested the lower boundary of the market profile at 0.5810.

If 0.5810 holds and price turns lower, the green support at 0.5765 could again provide support. If the pair continues to rise, attention may return to the POC area at 0.5840.

The upper boundary of the market profile at 0.5860 is close to the red resistance zone at 0.5870, creating a potentially strong resistance area. The RSI + MAs indicator currently reads 46, 37 and 46. The slower moving average has not yet left the neutral zone, while the RSI briefly entered oversold territory before returning to neutral, which raises questions about the strength of the current breakout.

Summary

The pair’s near-term direction will likely depend on whether sellers can defend the lower boundary of the market profile. From a fundamental perspective, the key question is whether support for the US dollar, driven by tensions in the Middle East, proves more durable than the positive impact of New Zealand’s unexpectedly strong inflation data.