NZD/USD dips despite hawkish RBNZ

• RBA’s Orr says high rates still needed
• New Zealand releases inflation Expectations on Tuesday

The New Zealand dollar is lower on Monday. In  the European session, NZD/USD is trading at 0.6127, down 0.35%. The New Zealand dollar ended the week on a high note, gaining 0.86% against the US dollar on Friday.

RBA’s Orr says restrictive policy must continue

Reserve Bank of New Zealand Governor Orr told a parliamentary committee on Monday that inflation was still too high and the RBNZ would need to maintain its restrictive monetary stance.

Orr’s comments signaled a pushback against rate cut expectations, as the markets had priced in a cut as early as May. Orr said that the current inflation rate of 4.7% was still too high and the RBNZ was focused on lowering it to around 2%.

The RBNZ last raised rates in April 2023 and although the central bank hasn’t acknowledged that the rate-tightening cycle is over, the markets have assumed as much and have looked ahead to rate cuts. However, last week’s employment report was stronger than expected, with job growth rebounding 0.4% in the fourth quarter compared to -0.2% in the third quarter. This has dampened market expectations of a rate cut in May, as strong data reduces pressure on the central bank to lower rates.

The RBNZ’s steep rate-tightening cycle, which has raised the benchmark rate to 5.5%, has significantly lowered inflation but there is more work to be done. Orr & Co. wouldn’t mind maintaining rates in restrictive territory in order to continue pushing inflation lower.

We’ll get a look at New Zealand inflation expectations for the first quarter on Tuesday, which could move the New Zealand dollar. In the fourth quarter, inflation expectations eased to 2.76%, down from 2.83%, which was its lowest level in two years.

.

NZD/USD Technical

• NZD/USD tested support at 0.6512 earlier. Below, there is support at 0.6108
• 0.6175 and 0.6201 are the next resistance lines

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.