New Zealand releases its 1Q CPI data in the Wednesday session, an important report, and one that can be a catalyst for some moves in the NZD/USD pair. While inflation is expected to be fairly muted, and therefore is not a major concern for the RBNZ, a positive surprise can help give the Kiwi strength and push it towards 0.8230. A weaker than expected report meanwhile, can cause the pair to break its recent support and target 0.8120.

We will be monitoring 2 key fundamental releases to see if the NZD/USD can head to its highs seen in February around the 0.8550 area. IF GDP expands at a steady clip and the current account deficit shrink as expected it should work to support the NZD, and therefore gives us a chance to see the NZD/USD pair push its way above a key resistance level, opening up the way for an attack of the highs of the pair’s recent trading range.

While the general consensus is that the RBNZ will not be changing interest rates in its upcoming meeting, this risk event is still important for the forecasts that the RBNZ will put forward – the latest update since December. The interbank market is looking at the RBNZ hiking rates by around 25 basis points in the next year, with our expectation that any rate hikes may come in the 1Q of 2012. If the RBNZ forecasts for growth and inflation show the central bank more upbeat on the economic outlook, then its possible that the Kiwi can strengthen following the release, especially against the Australian Dollar, as that takes away most of the other factors that revolve around the USD or EUR.

New Zealand releases its retail sales data for the fourth quarter in the upcoming Asia-pacific session. After a very strong 2.2% gain in the third quarter the expectation is that sales will fall back down to earth at around 1.2%. We examine retail sales impact on GDP (with a look at manufacturing as well) and then argue that the AUD/NZD can extend its move in favor of the Kiwi if we see a positive release and a break of the 1.2830 daily support level.

While the kiwi will continue to predominately be pushed around by general risk sentiment the 4Q employment data can have an important impact now that the daily RSI reading in the NZD/USD pair has moved into and remained in overbought territory and we have a little bit of consolidation over the last five trading sessions. A positive jobs report is expected, which sets up the possibility of a negative reaction if it underwhelms.