The New Zealand dollar is drifting on Thursday. NZD/USD is trading at 0.5639 in the European session, down 0.04% on the day.
NZ Inflation Expectations Dip to 2.06% in Q1 2025
New Zealand business inflation expectations didn’t show much change in the first quarter. Two-year inflation expectations, which are closely monitored by the central bank, edged lower to 2.06%, compared to 2.12% in the fourth quarter of 2024 and higher than the forecast of 1.8%. The business sector expects inflation to remain subdued, which fits in nicely with the fact that actual inflation also remains low. In the fourth quarter, inflation was unchanged at 2.2% y/y, close to the Reserve Bank of New Zealand’s target of 2%.
The RBNZ meets on Feb. 19 and a rate cut is fully priced in, with the probability of a quarter-point or half-point cut at around 50/50. This could mean a live meeting with investors holding their breath as to the extent of the rate cut. The RBNZ has proven it can be aggressive, having chopped 125 basis points since starting the easing cycle last August. The cash rate is down to 4.25% but this is still too high, given the weak New Zealand economy.
The weak New Zealand dollar supports the case for the RBNZ to deliver a modest quarter-cut next week. The Federal Reserve is sounding more hawkish and is looking at only one or two rate cuts this year. If the RBNZ slices rates by a half-point next week it will significantly widen the New Zealand/US rate differential and put pressure on the kiwi, which has plummeted about 11% since Oct. 1.
Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on Wednesday and reiterated that the Fed is in no hurry to lower rates. The softer-than-expected inflation report, which came out just ahead of Powell’s testimony, will raise concerns that inflation is rebounding. If the next inflation release is also higher than expected, we could see calls for the Fed to consider raising rates.
NZD/USD Technical
- NZD/USD is testing support at 0.5638. Below, there is support at 0.5604.
- There is resistance at 0.5676 and 0.5710.