New Zealand Steadies After Slide

The New Zealand dollar is flat in Thursday trading. In the European session, NZD / USD is trading at 0.7157, up more than 0.02% per day.

New Zealand dollar plunges on fears of inflation

It was Black Wednesday for the New Zealand dollar, which fell 1.57%, its worst one-day display since Mach’s 23rd. The culprit behind the sharp downturn was the U.S. inflation report for April, which was much higher than expected. Main CPI jumped 4.2% year-on-year, and monthly, core CPI grew 0.9%, its highest level since 1982.

Analysts predicted much lower inflation, and that resulted in global securities falling sharply on Wednesday. The inflation report has also caused the US dollar to post large gains, especially against risky currencies such as New Zealand and Australian dollars. This is due to increased speculation that the Federal Reserve may consider accelerating its timeline to reduce its $ 120 billion QE program, which has supported the U.S. economy since the Covid boom in March 2020. Such a policy tightening would be optimistic for the U.S. dollar. .

Will the Fed respond to the higher inflation report, or reject it as “one-off” inflation? On Tuesday, ahead of the CPI’s release, Fed Governor Lael Brainard said inflationary risks are a “transitional increase” and urged the Fed to remain patient and continue its ultra-monthly monetary policy. Brainard pointed to the weak payroll report on non-farm workers last week as an indication that the U.S. recovery still has ways to go, saying that “today, to any extent, employment remains far from our goals.”

The sharp losses in the stock markets are a strong indication that investors are worried that higher inflation will rise and not a temporary one, as the Fed insists. If upcoming inflation reports show that higher inflation appears to be sustainable, the Fed may have to back down and look at a tough QE.

NZD / USD Technical

• NZD / USD is testing resistance at 0.7166. Above, there is resistance at 0.7350
• There is support at 0.7049 and 0.6982