New Zealand Dollar remains strong, with all eyes on RBNZ rate decision

• The New Zealand Dollar (NZD) extends upside in Wednesday’s early Asian session. 
• Improved risk sentiment and softer US Dollar support the NZD/USD pair. 
• Market participants await the RBNZ interest rate decision, with no change in rate expected. 

The New Zealand Dollar (NZD) extends the rally on the weaker Greenback on Wednesday. Further optimism in the risk sentiment has maintained the US Dollar (USD) under pressure in the previous sessions and created a tailwind for the pair. The signs of stronger demand from China also underpin the Kiwi as China is New Zealand's largest trading partner.

Nonetheless, escalating geopolitical tensions in the Middle East might limit the upside for the NZD. All eyes will be on the Reserve Bank of New Zealand (RBNZ) interest rate decision on Wednesday at 02:00 GMT. The New Zealand central bank will likely hold its Official Cash Rate (OCR) at 5.50% at its August meeting. The policy decision appears to be a “close call” between a hold and a cut, as inflation expectations fall. Traders will take more cues from the Press conference, and dovish comments from RBNZ Governor Adrian Orr could weigh on the Kiwi. Later in the day, the US July Consumer Price Index (CPI) will be in the spotlight. 

Daily Digest Market Movers: New Zealand Dollar strengthens ahead of RBNZ rate decision

• Swap markets imply a nearly 70% chance of the RBNZ lowering the cash rate by 25 basis points (bps) to 5.25%. Markets are pricing in 90 bps of easing this year and another 148 basis points in 2025.
• The US Producer Price Index (PPI)  for final demand in the US rose 2.2% YoY in July from 2.7% in June, the Bureau of Labor Statistics showed Tuesday. This figure was below the market expectation of 2.3%. On a monthly basis, the PPI increased 0.1% MoM in the same period after rising by an unrevised 0.2% in June. 
• The annual core PPI came in softer than expected, rising by 2.4% in July but falling short of an estimate of 2.7%. On a monthly basis, the core PPI remained unchanged.
• Investors expect a 25 basis point (bps) rate cut in September, followed by similar reductions in November and December. A 50 bps cut in September is possible but depends entirely on the data. 
• Atlanta Fed President Raphael Bostic said on Tuesday that recent economic data made him "more confident" that the Fed can get inflation back to its 2% target. Still, more evidence is needed before he's ready to support lowering interest rates, per Reuters. 

Technical Analysis: New Zealand Dollar resumes bullish bias 

The New Zealand Dollar trades on a firmer note on the day. However, the NZD/USD pair has resumed its uptrend since the price crossed above the key 100-day Exponential Moving Average (EMA) and broke above the descending trendline on the daily chart. The 14-day Relative Strength Index (RSI) is above the midline near 61.00, suggesting that upside momentum is present and the support level is likely to hold rather than break. 

The immediate resistance level for NZD/USD emerges at the 0.6090-0.6100 region, portraying the upper boundary of the Bollinger Band and psychological mark. A decisive break above this level could potentially take the price to 0.6154, a high of July 8. 

On the other hand, the resistance-turned-support level at 0.6050 acts as an initial support level for the pair. Any follow-through selling below the mentioned level would expose 0.5977, a low of August 8.