NZ Inflation Expectations dips, New Zealand dollar steady

The New Zealand dollar has recorded marginal gains on Thursday. NZD/USD is trading at 0.5998 in the North American session, up 0.05%. On Wednesday, the New Zealand dollar shot up as much as 1.2% before retracting and closing with a 0.70% gain.

Two-year inflation expectations is closely monitored by the Reserve Bank of New Zealand as inflation expectations can translate into real inflation. The indicator fell to 2.03% for the third quarter, down from 2.33% in Q2. One-year inflation expectations also dropped significantly to 2.03%, down from 2.73% in the second quarter.

Will the RBNZ lower rates next week?

Inflation has been on a downward path and fell to 3.3% in the second quarter, its lowest level in three years and close to the upper level of the central bank’s target range between 1% and 3%. This would support the case for a rate cut when the central bank meets on August 14 but an unexpectedly strong employment report has complicated matters for the RBNZ. Today’s inflation expectations release was the final key event prior to the rate decision, although further turmoil in the global markets could persuade policy makers to maintain rates.

The markets are more dovish than the central bank and have priced in a rate hike next week, with further cuts expected before the end of the year. In addition to inflation receding, manufacturing and services fell deeper into contraction territory in June and GDP declined in the second quarter and is expected to do so again in Q3, which would indicate a recession.
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NZD/USD Technical

• NZD/USD tested support at 0.5988 earlier. Below, there is support at 0.5950
• There is resistance at 0.6032 and 0.6070

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