The Reserve Bank of New Zealand (RBNZ) was the first to start raising interest rates in October last year and it might be the first to stop them. Last month we heard the RNBZ governor Adrian Orr hint at stopping rate hikes at some point, although we still don’t know if that moment is now.

Statistics NZ’s CPI hit a whopping 7.3% in the Q2 of 2022. Although the headline CPI was expected to slow to 1.5% in Q3, with annual inflation falling to 6.6%, down from 7.3% in Q2 but came at 2.2%. The future of the New Zealand and the global economy is still very uncertain and the inflation outlook is looking similar. Core inflation remains high too which will continue putting pressure on the Reserve Bank of New Zealand.

NZD/USD H4 Chart – MAs Still Acting As Resistance

The retrace higher seems complete

NZD/USD has been bearish on larger timeframe charts, as the FED remains extremely tightening, delivering three 75 bps hikes. But, with inflation remaining high, the RBNZ is in a big dilemma, which will keep NZD/USD tilted to the downside.

• NZ Q3 CPI 2.2% q/q (expected 1.6%)
• Q2 CPI inflation was 1.7%
• Rents, building costs 7.2% y/y, key drivers of the surge vs 6.6% expected
• Rents, and building costs inQ2 were 7.3%

Domestic inflation (i.e. non-tradeables) is +2% q/q and +6.6% y/y (the y/y is the highest since the series began in June 2000)

• Non-tradeable inflation measures goods and services that do not face foreign competition. It is an indicator of domestic demand and supply conditions (ps. this is a simplified description)

Tradeables inflation +8.1% y/y (prior +8.7)

The inflation data will keep RBNZ rate hikes on the boil. The highest ever y/y reading for domestic inflation will ensure that. The q/q smashing expectations and jumping even higher from Q2 will lock it in.

NZD/USD Live Chart