NZ dollar falls as US inflation rises

The New Zealand dollar has posted considerable losses in the Wednesday session. Currently, NZD/USD is trading at 0.7182, down 0.50% on the day.

US CPI hits 4-month high

Headline inflation in the US rose to 0.4% in December, matching the forecast. Importantly, this was the highest level since August and raises hope that inflation is finally on the way up. On an annual basis, CPI showed a gain of 1.3%, well below the Federal Reserve target of two percent. Core CPI ticked lower to 0.1%, down from 0.2% in the previous release. The shutdown of the US economy due to Covid-19 sent prices sharply lower, and with the US economy expected to show a strong recovery this year, some analysts are projecting inflation as high as 3 percent. The Federal Reserve will be carefully monitoring the inflation picture, and on Tuesday, St. Louis Fed President Bullard said that he expects inflation to rise in 2021 and 2022.

NZ commodity prices climb

It’s a light calendar week for New Zealand events, with just three tier-2 releases. Earlier in the day, ANZ Commodity Prices posted a strong gain of 1.9% for December, up from 0.9% beforehand. This is good news for the New Zealand economy, as exports of goods and services make up some 28% of the country’s GDP. New Zealand has weathered the Covid storm better than practically any other country, and if the global economy gets back on its feet in 2021, the future should be bright for the New Zealand dollar.

Despite today’s strong commodity numbers, the kiwi is in red territory on Wednesday. Later in the day, we’ll get a look at Building Approvals for November (21:45 GMT). The indicator was red-hot in October, jumping 8.8 per cent. Another strong gain could see the New Zealand dollar reverse directions and move higher.

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NZD/USD Technical

• NZD/USD is facing resistance at 0.7255. Close by, there is resistance at 0.7281
• There is support at 0.7180. Below, we find support at 0.7131
• The pair is putting downward pressure on the 20-day MA line

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