NZD dips as inflation expectations rise

The New Zealand dollar has edged lower today. NZD/USD is trading at 0.5932, down 0.15%.

NZ Inflation Expectations climb

New Zealand continues to grapple with high inflation and this has led to a rise in inflation expectations as well. For Q4, inflation expectations stand at 3.62%, up from the Q3 reading of 3.07%. With no new inflation data prior to the November 23r^d meeting, the inflation expectations release could play a key role in determining the Reserve Bank of New Zealand’s next rate move.

Inflation ticked lower to 7.2% in Q3, down from 7.3% in the second quarter. Still, one inflation report does not reflect a trend, and it’s too early to say if inflation has peaked. What is clear is that inflation remains more than three times the RBNZ’s target of 2%, and a rise in inflation expectations is another signal that the fight against inflation is far from over. Governor Orr, who was just given another 5-year term at the helm of the central bank, has his hands full as he tries to guide the economy to a soft landing and avoid a recession. The RBNZ began its tightening cycle ahead of the other major central banks and has hiked rates to 3.50%. The aggressive rate policy hasn’t brought down inflation, but it has hurt consumers and businesses who are struggling with the double-whammy of red-hot inflation and rising interest rates.

The financial markets are in caution mode today, as investors await the US midterm results.  The Republicans are expected to retake the House and possibly the Senate. Unless the Democrats pull a last-minute rabbit/donkey out of their hat, we are in for a deadlock in Washington, which will tie Biden’s hands for the next two years. With the US economy possibly headed for a recession, gridlock in Washington could unnerve investors and weigh on the equity markets, and the US dollar could be the big winner.

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NZD/USD Technical

• There is resistance at 0.6001 and 0.6095
• There is support at 0.5871 and 0.5800

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