Kiwi (NZD) Dips Below 0.61 After Lower Inflation Expectation by RBNZ
The New Zealand Dollar has shown resilience lately, but today it saw a significant decline after the inflation expectations by the Reserve Bank of New Zealand. The poll revealed that businesses expect reduced inflation and wage increase pressures. Inflation forecasts for Q1 2024 have fallen below the 2022 levels. This has reduced expectations and prices for a February RBNZ rate increase, sending NZD/USD lower.
This Should Turn the RBNZ Neutral
NZD/USD experienced further selling pressure yesterday however the trend still remains bullish since early last week. Late in the US session, this forex pair slipped to 0.6120s, disregarding the speech from RBNZ Governor Adrian Orr, which sounded confident. He said yesterday at his testimony that inflation remained high, forcing the RBNZ to keep rates at 5.5% which doesn’t hold much water since they themselves have said that inflation is coming from abroad. Besides, those comments came before today’s inflation expectations. We also had the RBNZ Deputy Governor adding that home prices have steadied, indicating confidence in the financial system’s ability to tolerate high interest rates.
NZD/USD made some decent gains last week, closing with a strong bullish move on Friday, as ANZ predicted another rate hike by the RBNZ, which is out of the question now and today we saw a sizeable decline. However, if the uptrend is to continue somehow, this forex pair must rise over 0.6150-60 where traders would then aim for the December high. But that’s only which is unlikely if the US inflation falls more than 5 points today.
Early this morning, the Inflation Expectations from New Zealand were released, which take extra importance right now for the reasons mentioned above (RBNZ rates). This report shows the change in the percentage that business managers expect the price of goods and services annually during the next 2 years.
Q4 2024 Inflation Expectations
- 1-year inflation expectations for Q1 2024 come at 3.22% vs 3.6% prior
- 2-year inflation expectations for Q1 2024 come at 2.50% vs 2.76% prior
This has lowered expectations for future Reserve Bank of New Zealand rate rises. But this doesn’t imply monetary easing either. Westpac weighed in as well, saying that they don’t think the Reserve Bank of New Zealand will embark on rate cuts and anticipate the cash rate to stay at 5.5%.
NZD/USD Chart Live
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