NZ dollar flat ahead of CPI and the Fed

It has been a quiet week for the New Zealand dollar, but that could change later in the day, with two key releases. The Federal Reserve holds a policy meeting and New Zealand releases CPI for the fourth quarter.

The currency markets have been steady this week, in contrast to the equity markets, which have seen sharp drops ahead of today’s FOMC meeting, the first in 2022. Investors are nervous as the Fed is poised to embark on a series of rate hikes, which could boost the US dollar at the expense of equities. The Fed will not be making any moves at the upcoming meeting but is widely expected to signal a rate hike in March, which has been priced in at 94%, according to FedWatch. If Fed Chair Powell signals a lift-off in March, that should give the US dollar a boost.

The baseline assumption is that the Fed will tighten four times this year, raising rates to 1%. The risk of further hikes is tilted to the upside, primarily because of surging inflation, which hit 7% in December and shows no signs of easing.

New Zealand CPI could hit 6%

Following the FOMC decision, New Zealand releases the quarterly CPI report. CPI rose 4.9% y/y in Q3 and is expected to accelerate to 5.7% in the fourth quarter, with some forecasts projecting a print above 6%. The markets have priced in a sharp gain, but if the reading is above expectations, the New Zealand dollar could get a boost. The RBNZ will be keeping a close eye on how hot inflation is, ahead of its policy meeting in late February. A reading above the expected will provide support for a rate hike at that meeting.

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NZD/USD Technical

• NZD/USD is putting strong pressure on support at 0.6675. Close by, there is support at 0.6636
• There is resistance at 0.6785 and 0.6856

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