The New Zealand dollar has started the week with slight gains. In the European session, NZD/USD is trading at 0.7259, up 0.22% on the day.
The week kicked off with the ANZ Business Confidence Index for May. The final reading came in at 1.8, compared to 7.0 in the preliminary read. Still, investors did not seem to mind, as the small gain follows back-to-back declines.
New Zealand dollar falls as US inflation jumps
The New Zealand dollar ended the week on a sour note, as NZD/USD fell 0.67% on Friday. This put a pause on the kiwi’s rally, as the currency was up every day last week save for Friday. The pair fell after US inflation was unexpectedly strong. The Core PCE Index, which is the Federal Reserve’s preferred inflation gauge, jumped 3.1% in April, up strongly from 1.8% and above the forecast of 2.9%. Earlier in May, the US dollar jumped after April CPI hit a 13-year high. If investors feel that higher inflation is not temporary, as the Fed has been insisting, then speculation will rise over a potential taper of QE, which could provide a boost for the US dollar this week.
Major economies continue to battle Covid, although the vaccine rollouts continue and Covid rates are receding. This has allowed economies to reopen, and stronger economic conditions have led to speculation that central banks may need to respond by tightening policy. This would mean a scaling back of stimulus or even a rate hike. The Bank of Canada recently tapered its QE programme and the Reserve Bank of New Zealand surprised the markets last week when it signalled the potential of a rate hike in the second half of 2022. If the RBNZ continues to send a hawkish message to the markets, we can expect the New Zealand dollar to gain ground.
NZD/USD Daily Chart
- There is resistance at 0.7777 and 0.7846
- On the downside, we have support at 0.7658 and 0.7608