NZ dollar extends losses after US CPI

New Zealand dollar closing in on 70 level

The New Zealand dollar is in negative territory for a third straight day. NZD/USD is currently trading at 0.7025, down 0.49% on the day. The pair is down 1.33% this week and is in danger of falling below the psychologically important 70 level.

As is the case with many developed economies, New Zealand has been experiencing surging inflation as the economy emerges from the Covid pandemic. In October, CPI for the third quarter jumped 4.9% y/y, up sharply from 3.3% in Q2. However, an important monthly inflation indicator, the Food Price Index, declined by 0.9% in October, the first decline in eight months.

The RBNZ has been cautiously optimistic about the country’s recovery from Covid, although higher global inflation remains a concern. Closer to home, the central bank has warned that the red-hot housing market runs the risk of a correction, as recent buyers could find themselves in trouble if mortgage rates rise or house prices fall. The bank has said that the economy has rebounded to pre-pandemic levels, but noted the recent Delta outbreak could hamper economic activity.

We’ll get another look at the mood of the business sector later in the day, with the release of BusinessNZ Manufacturing Index for October. The release comes on the heels of a disappointing ANZ Business Confidence index, which fell for a fourth consecutive month. The survey noted that costs for businesses have gone “through the roof”, with some 89% of firms reporting higher costs.

In the US, inflation shows no sins of slowing. CPI for October rose 6.2% y/y, above expectations and the largest gain since 1990. This sent US 10-year Treasury yields higher and boosted the US dollar. The markets have priced in several rate hikes in 2022, a much more hawkish projection than the Fed. With PPI and CPI at 30-year highs, the Fed’s message that inflation is transitory is becoming a harder sell to the markets.

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NZD/USD Technical

• There is resistance at 0.7188 and 0.7255
• NZD/USD is testing support at 0.7063. Below, 0.7005 is under pressure, followed by support at 0.6938

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