NZD hits 4-week high on hot inflation

The New Zealand dollar is drifting on Monday, after briefly breaking above the 71 level. Overnite, NZD/USD rose to 0.7105, its highest level since September 16. The currency climbed 2.07% last week, its best week since late August.

New Zealand inflation climbs to 10-year high

Inflation continues to rise in the major economies. The relaxation of health restrictions and the reopening of economies have led to an unleashing of pent-up demand as well as supply-chain disruptions. New Zealand reported that third-quarter inflation surged to 4.9% (YoY), up from 3.3% in Q2 and above the consensus of 4.2%. This was the highest inflation rate in 10 years. Consumer prices rose 2.2% (q/q), compared to 1.3% in Q2 and ahead of the forecast of 1.5%.

Major central banks such as the Fed, the ECB and the BoE have argued that the surge in inflation is a temporary phenomenon, but markets are becoming more sceptical of this stance as there are no signs that inflation will ease anytime soon. In New Zealand, inflation has exceeded the RBNZ 1-3% target band, and ASB Bank is projecting that inflation will top 5% by the end of the year. Inflation continues to rise despite the prolonged lockdown of Auckland, the country’s largest city, which has dampened economic growth.

The RBNZ has embarked on a series of rate hikes and raised rates by 0.25% earlier this month, with another 0.25% hike fully priced in for the November meeting. This may not be enough to contain inflation, and the market has priced in a 50% chance that the bank will raise rates by 50 basis points at next month’s meeting.

The US dollar index continues to range-trade and is currently at 0.9405, up 0.10% on the day. If the index has a daily close below 93.50, that could change the bullish sentiment towards the US dollar. Conversely, if the index breaks above resistance at 94.50, it has room to move higher.

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NZD/USD Technical

  • NZD/USD faces resistance at 0.6855 and 0.6963
  • There are support lines at 0.7128 and 0.7185

This article 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 Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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