New Zealand dollar drifting

The New Zealand dollar is almost unchanged in Tuesday trade. Currently, NZD/USD is trading at 0.7228, up o.08% on the day.

New Zealand Inflation Expectations accelerates

New Zealand has done an excellent job of containing Covid-19, as the country has benefitted from its island status. The strict lockdowns in response to Covid came with a steep price tag, as the economy fell into a recession last year. Still, the economy has rebounded in impressive fashion, with most economic indicators pointed upwards. The recovery has been so successful that the RBNZ will have to consider raising interest rates to match a hot economy. Just a few months ago, there was talk of the RBNZ introducing negative interest rates.

On the inflation front, there was positive news from the RBNZ’s Inflation Expectations. Like many key New Zealand indicators, this is released on a quarterly basis. Expected inflation for Q1 of 2o21 rose for both one year (1.73%) and for two years (1.89%). This was stronger than the Q4 readings of 1.23% and 1.59%, respectively. The RBNZ said that it had raised inflation expectations from the November forecasts due to unexpectedly strong readings from inflation and GDP data. This data is closely monitored by the RBNZ, as inflation expectations can translate into real inflation. The central bank has an inflation target of around 2%, and these readings are a sign that inflation is rising towards this target.

With New Zealand showing a strong recovery, the markets are starting to talk about interest rate hikes, The more pressing question, however, is whether the RBNZ should consider tapering its QE scheme. The central bank has pledged to purchase up to NZD 100 billion, under the large scale asset purchase (LSAP) programme. Any hints that the RBNZ is considering tapering QE would be bullish for the New Zealand dollar.

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NZD/USD Technical

• NZD/USD is testing resistance at 0.7240. Close by, there is resistance at 0.7277
• There is support at 0.7150. Below, we find support at 0.7097
• The 50-day moving average (MA) remains relevant, at 0.7141

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