FX Daily Strategy: Asia, May 27th

The RBNZ has begun to tilt hawkish in their last meeting but has not significantly revise their OCR rate path. They had already expected CPI to overshoot target range in the first half of 2026. But the magnitude maybe greater than expect, especially the energy shock may last longer than their baseline scenario of June. We expect the RBNZ meeting on Wednesday to tilt further hawkish, revising their inflation forecast and could hint a hike if energy shock last longer than baseline scenario. It could provide some support for the Kiwi as market pricing is relatively low. At the same time, the Kiwi could also be supported by improving risk sentiment on a deal being reached in Middle East. Either way, Kiwi's next leg could be higher on any break through.

On the chart, there is little change as prices extend choppy trade above the .5815 low of last week with bounce attempt well contained below the .5900 level. Would need to regain this to clear the way for retest of strong resistance at  the .5930. Above here will revive the upside focus and clear the way for retest of .5990 high and see scope to extend gains from .5680 April current year low. Meanwhile, support at the .5850/.5815 congestion and 29 April low should underpin. Failure, will extend losses from the .5990 high of 6 May and see room to the .5800/.5750 congestion area.

The April Australian CPI will likely remain red hot above target range. While it is unlikely to shoot towards 5% on moderating energy prices, the 4% CPI is very real. The inflationary pressure, however, may not be enough to persuade the RBA to hike further as they take their time to assess the impact of consecutive tightening. Widely expected to end soon, the geopolitical easing would lower the inflationary pressure for Australia from energy price. The softening labor market could also contribute to moderating wage growth. Thus, the April CPI, unless surprisingly hawkish, will not be enough to argue for a fourth consecutive hike.

Nevertheless, Aussie's movement will be more correlated to broader risk sentiment and precious metal prices. Both sides wanted to end the conflict. Iran is running out of oil storage facility and Trump is facing paramount domestic pressure. There will likely be compromise from both sides to come to an arragenment to at least reopen the Strait of Hormuz. The risk sentiment will be further supported, so as the Aussie.

On the chart, the pair is firm within the .7100/.7200 range but resistance at the .7185/.7200 area keeping gains in check. Would take break here to revive upside focus and see scope to retest the .7278 current year high of 6 May and extend the broader gains from the April 2025 year low towards the .7300/.7400 congestion area. Meanwhile, support at the .7100 expected to underpin. Would take break here to open up room for deeper pullback to retrace rally from the .6833 March low. Lower will see scope to support at the .7055 and .7000 Fibonacci levels.