NZD/USD: Kiwi under pressure amid New Zealand’s slowing inflation
April 20, 2023 12:24 pm
The NZD/USD currency pair updated a four-week price low today, reaching 0.6144. Sellers of NZD/USD failed to overcome the support level of 0.6150 (the lower line of the Bollinger Bands indicator on the D1 timeframe), followed by a price pullback. But in general, the pair remains bearish, as today’s release is largely a deciding factor, primarily in the context of further prospects for tightening monetary policy by the Reserve Bank of New Zealand.
New Zealand inflation in the red
According to the published data, the Consumer Price Index (CPI) in New Zealand decreased to an annualized rate of 6.7% in the first quarter. Most experts had forecast a more modest decline to 7.1%. In the fourth quarter of 2022, the index was at 7.2%. In quarterly terms, the CPI also came out in the “red zone” at 1.2%, with a forecast growth of 1.5%.
Recall that at the end of its meeting in early April, the RBNZ surprised investors with its hawkish attitude by raising the interest rate again by 50 basis points. In an accompanying statement, the regulator said committee members had discussed raising the rate by 25 or 50 basis points, but in the end the scales tipped in favor of the more hawkish scenario, given that inflation “is still too high and persistent.”
Note that on a quarterly basis, the consumer price index reached the 7.2% target in Q4, and according to preliminary forecasts, it should have come out at 7.1% in the first quarter of this year, which is actually at the same level as before, in the area of 30-year highs. But the de facto index fell to 6.7%, the weakest growth rate of the past year (the index only went below that level in Q4 2021).
All this suggests that the Reserve Bank of New Zealand may revise its aggressive policy, slowing the rate hike pace to 25 points. It should be emphasized that, following the April meeting, the regulator effectively refuted the assumption that the current monetary policy tightening cycle is nearing its end. The minutes state that the central bank needs to continue raising the rate further to bring inflation back to the 1%–3% target level. However, given the fact that the inflation growth rates in the country have slowed down, the balance will gradually tilt towards a more moderate pace of monetary policy tightening.
Will the RBNZ moderate its fervor?
The next RBNZ meeting will take place in just a month, on May 24. Therefore, the regulator will be working with the inflation data published today. CPI growth reports in New Zealand are released quarterly, so the next inflation release is expected in July.
Prior to the May meeting, data on the growth of the nation’s economy for the first quarter of this year will still be made public. If the published figures repeat the trajectory of the previous release, then the issue of reducing the rate of tightening of the monetary policy will be resolved.
Recall that the GDP volume in the fourth quarter of last year grew by 2.2% YoY with a growth forecast of 3.3% (while the third quarter recorded a growth of 6.4%). In quarterly terms, the country’s economy contracted by 0.6%, while most experts forecasted a more modest decline – by 0.2%. The fourth-quarter result was much weaker than the Reserve Bank of New Zealand’s expectations, which predicted a 0.7% increase in the country’s economy for that period.
Severe weather conditions at the beginning of the year clouded the economic outlook. The incessant rains caused landslides, flooding, destruction of homes, highway closures and infrastructure damage. According to many experts, such circumstances will affect the economic results of the first quarter.
Conclusions
Today’s published report reflected a slowdown in inflation growth in New Zealand. The consumer price index entered the red zone, increasing pressure on the kiwi. The NZD/USD pair impulsively declined, despite the overall weakening of the U.S. currency (the U.S. dollar index is showing a downward trend today).
From a technical perspective, the pair is between the middle and lower Bollinger Bands lines on the daily chart, below all Ichimoku indicator lines (including the Kumo cloud), which formed a bearish “Parade of Lines” signal. NZD/USD sellers today tested the 0.6150 support level (the lower Bollinger Bands line on the D1 timeframe) but were unable to consolidate below it, forcing them to retreat. Therefore, despite the “bearish” fundamental background, it is advisable to consider selling only after overcoming this price barrier. In this case, the target of the downward movement will be 0.6070 – at this price point, the lower Bollinger Bands line on the weekly chart coincides with the Kijun-sen line.
The material has been provided by InstaForex Company – www.instaforex.com
The NZD/USD currency pair updated a four-week price low today, reaching 0.6144. Sellers of NZD/USD failed to overcome the support level of 0.6150 (the lower line of the Bollinger Bands indicator on the D1 timeframe), followed by a price pullback. But in general, the pair remains bearish, as today’s release is largely a deciding factor, primarily in the context of further prospects for tightening monetary policy by the Reserve Bank of New Zealand.
New Zealand inflation in the red
According to the published data, the Consumer Price Index (CPI) in New Zealand decreased to an annualized rate of 6.7% in the first quarter. Most experts had forecast a more modest decline to 7.1%. In the fourth quarter of 2022, the index was at 7.2%. In quarterly terms, the CPI also came out in the “red zone” at 1.2%, with a forecast growth of 1.5%.
Recall that at the end of its meeting in early April, the RBNZ surprised investors with its hawkish attitude by raising the interest rate again by 50 basis points. In an accompanying statement, the regulator said committee members had discussed raising the rate by 25 or 50 basis points, but in the end the scales tipped in favor of the more hawkish scenario, given that inflation “is still too high and persistent.”
Note that on a quarterly basis, the consumer price index reached the 7.2% target in Q4, and according to preliminary forecasts, it should have come out at 7.1% in the first quarter of this year, which is actually at the same level as before, in the area of 30-year highs. But the de facto index fell to 6.7%, the weakest growth rate of the past year (the index only went below that level in Q4 2021).
All this suggests that the Reserve Bank of New Zealand may revise its aggressive policy, slowing the rate hike pace to 25 points. It should be emphasized that, following the April meeting, the regulator effectively refuted the assumption that the current monetary policy tightening cycle is nearing its end. The minutes state that the central bank needs to continue raising the rate further to bring inflation back to the 1%–3% target level. However, given the fact that the inflation growth rates in the country have slowed down, the balance will gradually tilt towards a more moderate pace of monetary policy tightening.
Will the RBNZ moderate its fervor?
The next RBNZ meeting will take place in just a month, on May 24. Therefore, the regulator will be working with the inflation data published today. CPI growth reports in New Zealand are released quarterly, so the next inflation release is expected in July.
Prior to the May meeting, data on the growth of the nation’s economy for the first quarter of this year will still be made public. If the published figures repeat the trajectory of the previous release, then the issue of reducing the rate of tightening of the monetary policy will be resolved.
Recall that the GDP volume in the fourth quarter of last year grew by 2.2% YoY with a growth forecast of 3.3% (while the third quarter recorded a growth of 6.4%). In quarterly terms, the country’s economy contracted by 0.6%, while most experts forecasted a more modest decline – by 0.2%. The fourth-quarter result was much weaker than the Reserve Bank of New Zealand’s expectations, which predicted a 0.7% increase in the country’s economy for that period.
Severe weather conditions at the beginning of the year clouded the economic outlook. The incessant rains caused landslides, flooding, destruction of homes, highway closures and infrastructure damage. According to many experts, such circumstances will affect the economic results of the first quarter.
Conclusions
Today’s published report reflected a slowdown in inflation growth in New Zealand. The consumer price index entered the red zone, increasing pressure on the kiwi. The NZD/USD pair impulsively declined, despite the overall weakening of the U.S. currency (the U.S. dollar index is showing a downward trend today).
From a technical perspective, the pair is between the middle and lower Bollinger Bands lines on the daily chart, below all Ichimoku indicator lines (including the Kumo cloud), which formed a bearish “Parade of Lines” signal. NZD/USD sellers today tested the 0.6150 support level (the lower Bollinger Bands line on the D1 timeframe) but were unable to consolidate below it, forcing them to retreat. Therefore, despite the “bearish” fundamental background, it is advisable to consider selling only after overcoming this price barrier. In this case, the target of the downward movement will be 0.6070 – at this price point, the lower Bollinger Bands line on the weekly chart coincides with the Kijun-sen line.
The material has been provided by InstaForex Company – www.instaforex.com
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