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The New Zealand Dollar is trading lower on Thursday after government data showed consumer inflation was not quite as robust as expected in the first quarter. The news encouraged investors to slightly widen the odds on another half-point interest rate hike.
At 08:41 GMT, the NZD/USD is trading .6797, down 0.0011 or -0.17%.
NZ Consumer Prices Jump but Miss Estimates
Government data showed New Zealand consumer prices jumped a huge 1.8% in the first quarter, from the previous quarter, but still missed forecasts of a 2.0% rise.
Annual inflation accelerated to 6.9%, up from 5.9% and the fastest since 1990, but short of the 7.1% expected. Indeed, markets had wagered on an even higher outcome given how inflation around the world has been surging.
Reserve Bank of New Zealand Concerned about Inflation Spiral
The Reserve Bank of New Zealand (RBNZ) has already lifted the official cash rate four times, with the last an aggressive half-point move to 1.5%.
Policymakers are worried high inflation will feed through to future price and wage settings and risk an inflation spiral that might only be tamed through a forced recession.
Financial Markets Lower Odds of 50-Basis Point Rate Hike
Before the inflation report, the financial markets were pricing in a 50-basis point rate hike by the RBNZ. The swap market was still heavily priced for a half-point hike in May, but now a little less than before the report.
Some analysts have even changed their outlook for inflation.
“Looking ahead we think inflation is now around its peak,” said Ben Udy, an economist at Capital Economics.
”The chance of the RBNZ hikes rates by another 50 basis points in May has now diminished,” added Udy. “But we still suspect rates will rise to 3.0% by the end of this year.”
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through .6715 will signal a resumption of the downtrend. A trade through .6902 will change the main trend to up.
The NZD/USD is trading on the strong side of a retracement zone at .6781 to .6722, making it support.
The minor range is .6902 to .6715. Its 50% level at .6809 is resistance.
The short-term range is .7034 to .6715. Its 50% level at .6875 is additional resistance.
Daily Swing Chart Technical Forecast
The direction of the NZD/USD on Thursday is likely to be determined by trader reaction to a pair of 50% levels at .6781 and .6809.
Bullish Scenario
A sustained move over .6809 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the second pivot at .6875. This is the last potential resistance before the .6902 main top.