NZ dollar rebounds on sticky inflation report

The New Zealand dollar has bounced back with strong gains on Wednesday, ending a nasty slide of 3.4% which started last week. In the North American session, NZD/USD is trading at 0.5907, up 0.45%.

New Zealand inflation falls less than expected

New Zealand’s CPI continued to ease in the first quarter but the markets were expecting more. CPI fell to 0.6% q/q, in line with expectations but shy of the 0.5% market estimate. The main drivers behind the inflation reading were increases in housing and household utility costs. On an annualized basis, CPI dropped to 4%, below the market estimate of 4.3% and down from 4.7% in Q4 of 2023. This was the lowest rate since Q2 2021.

The stronger-than-expected CPI release boosted the New Zealand dollar as the Reserve Bank of New Zealand may cut rates later than previously expected. The central bank could decide not to lower rates until late in the year or even in early 2025. Inflation remains too sticky for the RBNZ, which wants to bring inflation within the target band of 1-3%. Until that goal is achieved, the central bank is likely to continue its “higher for longer” stance and keep rates in restrictive territory.

China is New Zealand’s largest trading partner and the slowdown in China could spell bad news for New Zealand’s economy and the New Zealand dollar. On Tuesday, US President Biden urged that tariffs on Chinese steel and aluminum products be tripled from 7.5% to 22.5% in response to US warnings that China is involved in unfair trade practices. Biden faces a tough battle for re-election in November and domestic US politics could make China an easy punching bag in the months ahead.

NZD/USD Technical

• NZD/USD is testing resistance at 0.5886. Above, there is resistance at 0.5984
• There is support at 0.5835 and 0.5737