NZD/USD Price Forecast: Cooling NZ inflation expectations push Kiwi under pressure

The New Zealand Dollar (NZD) saw a decline against the US Dollar (USD) in Thursday's European trading session, falling 0.45% to around 0.5830. This decline was attributed to downwardly revised Reserve Bank of New Zealand (RBNZ) two-year inflation expectations for the third quarter, which have raised questions about potential interest rate hikes.

The RBNZ's Q3 inflation expectations for the two-year period were revised lower to 2.34% Year-on-Year (YoY) from the previously projected 2.53%. Lower New Zealand inflation expectations have cast doubt on the likelihood of an interest rate increase by the RBNZ at the September policy meeting. Previous financial markets had been optimistic about the RBNZ raising rates in September.

TD Securities stated that the latest labor market figures, while mixed, are unlikely to prevent the RBNZ from raising rates again by 25 basis points in September. The RBNZ maintains that, despite mixed reports, the bank believes the September hike is still possible as long as economic activity continues to recover in Q3. Meanwhile, the US Dollar (USD) maintained gains from Wednesday, buoyed by ongoing Middle East tensions.

In domestic markets, both US headline and core Consumer Price Index (CPI) cooled down in July, which could weaken the US Dollar's strength. NZD/USD is trading near the downward-sloping trend line at 0.5827 after crossing below the 20-period Exponential Moving Average (EMA) at 0.5842. The Relative Strength Index (RSI) stands at 50.1, indicating neutral momentum after the recent pullback from the 0.5890 level.

The immediate resistance for NZD/USD is the intraday high of 0.5870, while the first support level is at the upward-sloping trendline break level at 0.5827. Breaking this support could expose the pair to a deeper correction towards 0.5800, with a subsequent low at 0.5761.