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
