As we previously noted, to confidently forecast the Reserve Bank of New Zealand's (RBNZ) actions at its upcoming August meeting, two key reports were needed — on inflation and the labor market. The first of these showed that while inflationary pressure remains relatively high, it is still below the RBNZ's May forecast, and therefore does not pose an obstacle to a rate cut in August.

Now the focus shifts to the labor market. The quarterly report, due on August 5, will provide the necessary insight into the state of domestic inflationary pressure. Forecasts suggest that the labor market will show weakness across multiple indicators — meaning both declining labor demand and decreasing supply. BNZ Bank forecasts an increase in unemployment to 5.3%, but since migration has also slowed, employment is expected to remain stable. A weak labor market does not support household spending growth, which in turn may underscore the need for further monetary policy easing to support economic recovery. Therefore, if the report aligns with projections, it will increase the likelihood of an RBNZ rate cut, but not a hike — meaning that in anticipation of the report, the kiwi is likely to continue declining.

As for the main theme of recent months — the trade agreement with the U.S. — it is expected that an announcement on the deal will be made this week. Given uncertainty surrounding the deal's details, heightened volatility may follow the announcement. The main uncertainty lies in whether the current 10% tariff (in place since April) will be raised to 15% or higher (as proposed by Trump as the new baseline). In any case, the tariffs for New Zealand are expected to be moderate and unlikely to provoke a strong market reaction.

Bullish positioning on the NZD was short-lived: in the reporting week, it fell by 406 million, leading to a net short position of 190 million. The estimated price has dropped well below the long-term average, suggesting further downside for the kiwi.

The NZD/USD pair reached the 0.6060/80 resistance zone before turning south. The next immediate target is a move below 0.5900, after which the next objective will be 0.5840/70. Despite the technical picture still forming a reversal, fundamental indicators support a continued downward move.