NZD/USD unchanged ahead of New Zealand retail sales

• New Zealand retail sales expected to decline
• RBNZ expected to raise rates by 25 bp

The New Zealand dollar is coming off a strong week, with gains of 1.36%. In Monday’s North American session, NZD is unchanged, trading at 0.6274.

New Zealand retail sales expected to decline

New Zealand releases retail sales on Tuesday. The central bank’s tightening has hampered consumer spending and the markets are bracing for a decline in retail sales for the first quarter. Headline retail sales are expected at -0.4%, after -0.6% in Q4 2022. The core rate is projected to decline by 0.6%, following -1.6% in Q4.

The retail sales report will be followed by 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 central bank has not been shy about tightening, with the benchmark cash rate currently at 5.25%.

Inflation in March from 7.2% to 6.7% on an annualized basis, more than double the upper range of the 1-3% target. The RBNZ is unlikely to wind up the current rate-tightening cycle before inflation drops substantially. 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.

Fed Chair Jerome Powell said on Friday that the banking sector turmoil could mean that the Fed will not have to raise rates “as much as it would have otherwise”. Powell reiterated that inflation remained too high and future rate decisions would depend on data. The takeaway from Powell’s remarks is that we could be close to the end of the current rate-hike cycle, but inflation will have to cooperate and move lower to the 2% target.

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NZD/USD Technical

• NZD/USD is putting pressure on support at 0.6256. Below, there is support at 0.6207
• 0.6326 and 0.6375 are the next resistance lines

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