New Zealand dollar edges lower after CPI

New Zealand rises to 6.9%

There was plenty of anticipation ahead of the New Zealand inflation report, which is released each quarter. The consensus was a sharp rise of 7.1% YoY in Q4, compared to the Q3 reading of 5.9%. To the relief of investors, the actual reading was a bit less than expected, at 6.9%, and the New Zealand dollar’s response has been muted. Still, this gain is the fastest pace in 32 years, which means that soaring inflation remains a headache for consumers, businesses and the RBNZ, which is tasked with containing inflation.

In fairness, high inflation is a worldwide problem. The RBNZ can’t be faulted for being aggressive, as it delivered a super-size rate hike of 0.50% last week. The central bank can, however, be criticized for falling behind the inflation curve, and investors voiced their displeasure with the RBNZ’s rate policy when they sent the New Zealand dollar sharply lower after the rate hike.  Clearly, Governor Orr has some work to do in order to regain the confidence of the markets, otherwise, NZD/USD could continue to lose ground.

Clear guidance is critical, and earlier this week Orr was crystal clear, saying that further rate rises were planned in the coming quarters. The RBNZ is concerned that rising inflation manifests into long-term inflation expectations and is hoping that additional tightening will dampen inflationary pressures, which have been felt throughout the economy.

NZD/USD enjoyed a spectacular session yesterday, which was more about US dollar weakness than the strength of the New Zealand dollar. Markets were in a profit-taking mood, as US Treasury bonds gave up some ground after the sharp gains we’ve seen recently. This resulted in broad US weakness, with NZD/USD posting a sparkling 1.13% gain.

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NZD/USD Technical

• There is resistance at 0.6856 and 0.6953
• NZD/USD is putting pressure on 0.6774, a monthly support line. Next, there is support at 0.6709

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