The New Zealand dollar has reversed directions today and recorded sharp losses. NZD/USD is trading at 0.6285, down 0.75% on the day. Risk appetite has fallen, with US Speaker of the House Nancy Pelosi’s controversial trip to Taiwan right around the corner. The safe-haven Japanese yen has extended its gains, while risk-related currencies like the Australian and New Zealand dollars are seeing red today.
New Zealand releases the employment report for Q2 on Wednesday. The labor market has been solid but unspectacular – in the last two quarters, Employment Change climbed by a negligible 0.1%, while the unemployment rate remained steady at 3.2%.
Employment Change is expected to rise to 0.4%, and the unemployment rate is forecast to tick lower to 3.1%. With the markets expecting only a slight change in the second quarter, I don’t expect the New Zealand dollar to react unless the forecasts are wide off the mark.
RBNZ Eyes Inflation Expectations
The Reserve Bank of New Zealand continues to grapple with soaring inflation, which rose to 7.3% in Q2, up from 6.9% in Q1. The central bank has raised rates to 2.50%, but with inflation well above the target of around 2%, rates will have to keep rising. The RBNZ is also concerned about inflation expectations, which, if left unchecked, will strengthen inflation and exacerbate the bank’s efforts to curb inflation.
Inflation Expectations accelerated for eight straight quarters and hit 3.29% in Q1, up from 3.27% and a 31-year high. We’ll get a look at Inflation Expectations for Q2 next week, and if the current trend continues and the reading accelerates, it will put further pressure on the RBNZ to respond with a large rate hike at the Aug. 17 meeting.
NZD/USD Technical View
- NZD/USD is putting strong pressure on support at 0.6271. Below, there is support at 0.6213
- There is resistance at 0.6350 and 0.6408