New Zealand dollar extends losses, inflation expectations expectNew Zealand releases inflation expectations for the first quarter on Friday. Inflation expectations can manifest into actual inflation and are considered a market-mover. Over the past three quarters, inflation expectations have hovered around the 2% level, which is the mid-point of the Reserve Bank of New Zealand's target band of 1%-3%. However, inflation expectations are expected to climb to 2.4% in the second quarter, which could complicate the Reserve Bank's plans to further trim interest rates.
New Zealand consumer inflation rose 2.5% y/y in the first quarter, up from 2.5% in Q4 2024 and above the market estimate of 2.2%. This is comfortably within the RBNZ target band and enabled the Bank to cut rates to 3.5% from 3.75% last month.
The central bank left the door open to further rate cuts at the April meeting, stressing the risk to the New Zealand economy due to rising global trade tensions. New Zealand's largest trading partner is China and the temporary agreement between the US and China to slash tariffs is good news for New Zealand's export sector. The Reserve Bank meets next on May 28.
US retail sales in April posted a weak gain of 0.1% m/m. This was well below the upwardly revised 1.7% gain in March but edged above the market estimate of 0%. There was also soft data from the inflation front. Producer Price inflation declined 0.5% in April, down from the upwardly revised 0% in March and below the market estimate of 0.2%.
The Federal Reserve is virtually certain to hold rates at the June 30 meeting, but there is a 36% chance of a rate cut in July and a 50% likelihood in September, according to CME's FedWatch. Fed Chair Powell has adopted a wait-and-see stance due to the uncertainty over US trade policy. With inflation largely under control and the labor market in solid shape, Powell is no rush to lower rates.
NZD/USD is testing support at 0.5871. Below, there is support at 0.5844
There is resistance at 0.5920 and 0.5947
