NZ dollar slips ahead of New Zealand inflation

The New Zealand dollar is down for a third straight day and has plunged 3.4% in less than a week. In the North American session, NZD/USD is trading at 0.5881, down 0.36%.

New Zealand inflation expected to fall to 4.3%

New Zealand’s inflation rate has been dropping and the trend is expected to continue on Wednesday. CPI for the first quarter is expected to drop to 4.3% y/y, compared to 4.7% in Q4 of 2023. On a quarterly basis, CPI is projected to rise to 0.6%, up a notch from 0.5% in the fourth quarter.

The Reserve Bank of New Zealand kept the cash rate unchanged at 5.5% for a sixth straight time at last week’s meeting, a signal that policy makers are in no rush to trim rates. At the meeting, the RBNZ said it would maintain restrictive policy in order to bring inflation back down its target band of 1-3%.

The RBNZ’s policy of “higher for longer” has pushed inflation lower but concerns remains over core inflation, which remains sticky. There is pressure on the central bank to lower rates as the economy is weakening and could tip into a recession. This week’s services and manufacturing releases were awful, with activity in both sectors softening and showing contraction.

In China, GDP rose 5.3% y/y in the first quarter, beating the 5.2% gain in Q4 2023 and above the market estimate of 5%. The expansion is good news but it’s questionable if the momentum can be sustained, as growth was driven by public investment rather than private demand. China also released industrial production and retail sales, with both slowing in March and missing expectations, a sign that China’s economy is still in trouble.

NZD/USD Technical

• NZD/USD is testing support at 0.5886. Below, there is support at 0.5835
• There is resistance at 0.5984 and 0.6035