NZ dollar soars ahead of CPI

The New Zealand dollar has recorded strong gains on Wednesday. In the North American session, NZD/USD is trading at 0.6807, up 1.1% on the day.

The US dollar is in full retreat against the majors today. The 10-year US Treasury yield has taken a breather after an impressive upswing. The 10-year rose up to 2.98% earlier today but has retreated and is currently at 2.87%. The US dollar index has also dipped to 100.28, down 0.67%. The minor currencies such as the New Zealand, Australian and Canadian dollars have all responded with sharp gains against the greenback today.

New Zealand CPI expected to soar

Will the New Zealand dollar hold onto today’s gains after the Q1 inflation release later today? The answer should be yes, provided that CPI is within expectations. The consensus is for a massive 7.1% YoY gain, up from 5.9% in Q4 of 2020. This would take inflation to its highest level since 1990. Energy and food prices are the usual suspects behind soaring inflation, but there are other factors at play. Supply chain disruptions have led to higher operating costs and output prices for businesses. As well, stronger consumer demand as Covid restrictions have eased has contributed to red-hot inflation.

The RBNZ is already in the midst of a rate-hike cycle and showed that it means business in the fight against inflation when it hiked rates by 0.50% last week, the largest rate increase in 22 years. On Monday, Governor Orr reiterated the Bank’s hawkish stance when he said that the RBNZ had provided “strong forward guidance” and that he expected to “be doing more rate rises over coming quarters.” In his comments, Orr touched on the challenge the RBNZ will face as it keeps hiking in order to curb inflation, which is to avoid a sharp economic slowdown.

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NZD/USD Technical

• There is resistance at 0.6856 and 0.6953
• NZD/USD has support at 0.6709 and 0.6659

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