NZD/USD slips ahead of RBNZ decision

• New Zealand retail sales expected to decline
• RBNZ projected to deliver 25-bp hike

The New Zealand dollar is lower on Tuesday. In the North American session, NZD/USD is trading at 0.6259, down 0.45% on the day.

Debt ceiling impasse boosts US yields

The US dollar is higher against most of the majors today, as the markets remain nervous about the US debt ceiling standoff. The Democrats and Republicans continue to negotiate, with a June 1^st deadline looming. The yield on the US 10-year Treasury notes has risen to 3.75%, its highest level since March. This has given a boost to the US dollar and yields could continue to push higher the closer we get to the deadline without a deal.

RBNZ expected to raise rates by 25 bp

All eyes are on the Reserve Bank of New Zealand’s rate decision on Wednesday. The markets have priced in a modest 25-basis point hike, which would be the smallest increase since February 2022, when the central bank raised rates from 0.75% to 1.00%. The benchmark cash rate currently at 5.25%.

The RBNZ would love to give consumers and businesses a break from its aggressive rate tightening, but inflation, which is its number one priority, remains stubborn and sticky. Inflation dipped in March from 7.2% to 6.7% but remains more than double the upper range of the 1-3% target. There was some positive news earlier in the month, as inflation expectations eased in the first quarter to 2.79%, down from 3.30% in the previous quarter. This may have cemented a 25-bp hike on Wednesday, as the central bank pays close attention to inflation expectations, which if embedded can lead to higher inflation.

High interest rates have cooled the New Zealand economy, and retail sales, which will be retail later today, are expected to decline for a second straight quarter in Q1. Headline retail sales are projected to decline by 0.4%, following a 0.6% drop in Q4 2022. The core rate is expected in at -0.6%, following a 1.6% decline in Q4.

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NZD/USD Technical

• NZD/USD tested support at 0.6256 earlier in the day. Below, there is support at 0.6207
• 0.6326 and 0.6375 are the next resistance lines

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