A better than expected CPI reading out of New Zealand triggered a surge higher in NZD/USD in early trading but gains were not sustained as sharp fall in early European trading served to erase most of the early day gain.
The consumer price index rose 1.0% in the first quarter of 2017 to beat the analyst consensus for a rise of 0.8% and following a prior gain of 0.4%. Annually, CPI rose 2.2% to beat the forecast of 2.0% and versus 1.3% in the previous quarter, marking the fastest pace of increase in over five years.
Economists were more optimistic as the Reserve Bank of New Zealand had set expectations for a 0.3% quarterly rise and a 1.5% annual increase. The RBNZ had not expected inflation to reach 2% until next year.
Major resistance at 0.7042 was in play and elicited the turn lower in the exchange rate in early European trading. The decline occurred despite a weaker dollar as the US dollar index (DXY) had remained under pressure during most of the decline in the currency pair.
DXY found support today at 99.43 which marks a spike low from December. The level held the pair higher at the end of January and early February and has held the index higher on two attempts today.
NZD/USD is seen testing support from the lower line of a channel that has encompassed price action for a week.
The pair has shown strong upside momentum since its low last week and in the absence of a downside break of channel support, NZD/USD retains a bullish near-term bias.
Out of the United States today, the Philadelphia Fed manufacturing index declined to 22.0 in April from 32.8 in the prior reading and against a consensus of 25.6. Weekly unemployment claims rose to 244,000 from 234,000 claims in the prior week, slightly missing the forecast of 241,000 claims.
Upside resistance remains at 0.7042 with some further resistance at 0.7058. In the event of a break below the rising channel, further support is seen at 0.6973.