NZD flat ahead of Inflation Expectations

It has been a quiet start to the week for the New Zealand dollar. This week’s economic calendar is light, with no New Zealand data on Tuesday. We could see NZD/USD show some movement on Wednesday, with the release of New Zealand Inflation Expectations on Wednesday.

New Zealand could face wage inflation spiral

New Zealand is experiencing surging inflation, which has hit 30-year highs. CPI climbed 1.4% q/q in Q4 2021, which put inflation at 5.9% y/y, its highest level since 1990. This is causing a headache for the government, and Prime Minister Ardern meekly argued that “we are not alone in experiencing high rates of inflation”.

That may be factually correct, but it won’t impress consumers who are seeing the cost of living jump. While wages have gone up, they are lagging behind the pace of inflation, which will likely lead to workers pushing for higher wages and salaries, which will set in motion a wage inflation spiral.

New Zealand Inflation Expectations has been steadily rising. The Q2 2020 release came in at 1.24%, but more than doubled in Q4 2021, to 2.96%, and likely will push above 3% for Q1 2022. The RBNZ closely monitors this event, as inflation expectations can manifest into real inflation.

High inflation remains a primary concern for the RBNZ, which will have to keep raising rates to combat high inflation. The central bank implemented back-to-back rate hikes of 0.25% over the past two meetings and is widely expected to raise by another 0.25% at the February 23rd meeting, which would raise the Cash Rate to 1.00%. The RBNZ is planning to raise rates incrementally into 2023 but will have to monitor economic data to ensure that the economy can withstand higher rates.

.

NZD/USD Technical

  • NZD/USD has support at 0.6472 and 0.6402
  • 0.6670 is a weak resistance line, followed by 0.6798

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

Latest posts by Kenny Fisher (see all)