NZ Dollar eyes US and New Zealand inflation data

The New Zealand dollar is in negative territory on Wednesday. NZD/USD is trading at 0.5636 in the European session, down 0.31% on the day.

US CPI expected to tick lower to 0.3%

The markets are keeping a close eye on the January inflation report, which will be released later today.  Headine inflation is expected to remain unchanged at 2.9% y/y, while monthly it is expected to dip to 0.3% from 0.4%. The core rate, which excludes food and energy, is projected to dip to 3.1% y/y from  3.2%. Monthly core CPI is projected to rise to 0.3% from 0.2%.

The Federal Reserve is expected to cut rates once or twice this year, sharply lower than the Fed’s December forecast of four rate cuts. The US economy is performing well and there isn’t much pressure on the Fed to lower rates right now. The markets have priced in a rate hold at the March meeting at 95%, according to the CME’s FedWatch.

Fed Chair Powell reiterated in testimony before a Senate Banking committee on Tuesday that the Fed “does not need to be in a hurry”  to adjust policy. Powell said that rate policy remains restrictive but the Fed would be careful not to lower rates too quickly or too slowly. Powell deflected a question about Trump’s tariffs and US trade policy but acknowledged that tariffs could lift inflation and complicate the Fed’s ability to lower rates.

New Zealand releases inflation expectations early Thursday.  The forecast for the first quarter stands at 1.8% q/q, compared to 2.1% in Q4 2024.  Inflation remained unchanged at 2.2% in the fourth quarter, close to the Reserve Bank of New Zealand’s target of 2%. The RBNZ meets next week and the money markets have fully priced in a rate cut, with about a 50/50 probability of quarter-point or half-point cut.

NZD/USD technical

• NZD/USD has pushed below support at 0.5648 and is testing support at 0.5636.  Below, there is support at 0.5549.

• There is resistance at 0.5668 and 0.5680.