New Zealand dollar extends gains as inflation falls

• New Zealand CPI fall to 4.7%
• New Zealand dollar rises

The New Zealand dollar has posted strong gains on Wednesday. In the European session, NZD/USD is trading at 0.6132, up 0.49%.

New Zealand CPI eases to 4.7%

New Zealand’s inflation rate was expected to slow in the fourth quarter and the estimates were right on the money. The annual inflation rate fell to 4.7%, down from 5.6% in Q3. This was the lowest level since Q2 2021. Quarterly, inflation eased to 0.5%, down sharply from 1.8% in the third quarter. The main drivers of the slowdown were lower prices for food and transportation.

The drop in inflation is good news and means that the Reserve Bank of New Zealand’s steep rate-tightening cycle is likely over. Still, with inflation remains well above the upper band of the 1-3% target range, and the central bank won’t be in any rush to chop interest rates. The benchmark rate stands at 5.5% and the RBNZ has maintained rates since May 2023. The RBNZ doesn’t meet until February 28. Unless there are some surprises from the fourth-quarter employment report and inflation expectations for Q1, the RBNZ will likely pause rates again.

We’ll get a snapshot of the strength of the US economy over the next two days, starting with PMI releases later today. Manufacturing has been deep in the doldrums, with the PMI posting only one gain in the past 15 months. The January PMI is expected to stay unchanged at 47.9. The services sector is in better shape and has posted 13 consecutive gains, although many of those readings have barely been above the neutral 50 level and point to stagnation.

The US releases first-estimate GDP on Thursday. The consensus estimate stands at 2.0%, which follows a sparkling 4.9% gain in the third quarter, which was the highest growth rate since Q4 2021.

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NZD/USD Technical

• NZD/USD is putting pressure on resistance at 0.6150. Above, there is resistance at 0.6211
• There is support at 0.6054 and 0.5993

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