NZ Dollar Slide Continues as Inflation Expectations Ease

• New Zealand Inflation Expectations falls to 2.79%
• US unemployment claims rise
• UoM consumer sentiment to be released later today

The New Zealand dollar is getting pummelled by the US dollar and is trading at 0.6240, down 0.93% on the day. This follows a drop of 1.07% on Thursday.

New Zealand inflation expectations decline

The week is ending on a high note for policy makers at the Reserve Bank of New Zealand. Inflation Expectations for the first quarter eased to 2.79%, down from 3.30% in Q4 of 2022. This marked a second straight deceleration and the first time inflation expectations have fallen below 3% in six months. The soft reading has pushed the New Zealand dollar sharply lower on expectations that the RBNZ might ease up on its rate hikes.

Central banks are constantly on the alert for inflation expectations becoming entrenched, which can generate inflation and complicate the battle to curb inflation. The RBNZ has been aggressive in its rate-hike cycle, raising the benchmark cash rate to 5.25%. At the April meeting, the RBNZ hiked by 50 basis points and the downturn in inflation expectations will provide support for the Bank to ease its pace of rate hikes at the May 24^th meeting to 25 bp, depending on the data.

The US economy has been showing signs of cooling, and the markets are widely expecting the Fed to pause in June, after ten straight hikes. The labour market has been surprisingly resilient, despite the Fed’s aggressive tightening. Unemployment claims surprised on the upside on Thursday, rising from 245,000 to 264,000, well above the estimate of 242,000. This is just one weekly report, but it’s sure to raise speculation that the labour market is showing cracks.

The US wraps up the week with UoM Consumer Confidence, which hasn’t looked very strong. The indicator fell to 63.5 in April and is expected to ease to 63.0 in May. Weak consumer confidence can translate into a decrease in consumer spending, a key driver of economic growth.

NZD/USD Technical

• NZD/USD is testing support at 0.6257. The next support level is 0.6199
• There is resistance at 0.6352 and 0.6482