NZD steady ahead of inflation expectations

The New Zealand dollar is slightly higher in the Wednesday session. NZD/USD is currently trading at 0.6999, up 0.12% on the day.

New Zealand will release Q3 Inflation Expectations early on Thursday. The indicator has been accelerating and rose to 2.27% in the second quarter. If the report points to inflation expectations continuing to accelerate, it would lend support to the odds of the RBNZ raising rates next week, perhaps by 50 basis points. A strong reading would also provide a boost for the New Zealand dollar, which has declined by 2.3% in November and is struggling to stay above the 70 level, which has psychological significance.

The RBNZ will be paying close attention, as inflation expectations can manifest into actual inflation. In October, annual inflation for Q3 jumped to 4.9%, up from 3.3% and above the consensus of 4.2%. The central bank was one of the first major central banks to tighten policy when it raised rates last month, and the RBNZ is widely expected to make a series of rate hikes lasting into 2022.

In the US, the Federal Reserve is feeling the pressure to take action in order to put a lid on red-hot inflation. CPI hit a 30-year high in October, and the Fed’s narrative that inflation is transient is drawing more scepticism with every CPI report. Inflation may finally start to ease next year, but that seems a long, long time away for consumers who are feeling the pinch of across-the-board price increases. The surge in inflation is eating away at President Joe Biden’s popularity, and the White House has asked regulators to look into illegal conduct on the part of oil and gas companies.

The chorus of voices calling on the Fed to accelerate tapering is getting longer. We’ll be hearing from Fed members throughout the week, and the markets will be listening closely, looking for some insights as to what the Fed may be planning next.

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NZD/USD Technical

• There is resistance at 0.7146 and 0.7252
• 0.6966 is a weak support line. Below, there is support at 0.6892

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