New Zealand dollar edges up ahead of CPI

The New Zealand dollar has edged higher on Tuesday and is trading just above the 0.65 line. NZD//USD is coming off a strong week, as it gained 1.39% and climbed to 7-month highs.

Markets eye New Zealand CPI

New Zealand releases CPI for the fourth-quarter later today, in what promises to be a closely watched release. Inflation is expected to drop to 1.3% q/q, down from 2.2% in Q3. On an annualized basis, CPI is forecast to inch lower to 7.1%, down from 7.2% in Q3. Like other major central banks, the Reserve Bank of New Zealand has circled inflation as public enemy number one and has raised rates by 325 basis points to the current rate of 4.25%. The RBNZ doesn’t meet until February 22nd, giving it a few more weeks to digest economic data ahead of the meeting. The most likely scenarios are for a rate increase of 75 or 50 bp, and the markets will be looking for clues as to the extent of the increase as we get closer to the meeting. Some central banks, such as the Fed and the Bank of Canada, may put rate hikes on pause after the first rate hike of the year, but the RBNZ will not be following suit.

Has inflation peaked? That key question remains unclear. Fuel prices fell in the fourth quarter, aided by government fuel tax cuts, but food prices remain high. The RBNZ will be keeping a close eye on the core rate, which is a more reliable indicator than the headline figure.

In the US, PMI readings for December were slightly better than expected, but that didn’t give much of a boost to the US dollar. Manufacturing PMI rose to 46.8, up from 46.2 in November (46.1 est.). Services PMI climbed to 46.6, up from 44.7 a month earlier (44.5 est.). A reading below 50.0 indicates contraction, and the latest PMIs point to weakness in both sectors.

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NZD/USD Technical

• There is resistance at 0.6547 and 0.6623
• 0.6455 and 0.6379 are providing support

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