RBNZ Q/Q INFLATION EXPECTATION RELEASE

• What does the data measure?
• Causes of recent global inflation
• Inflation in New Zealand
• Measures Used by Central banks to curb inflation
• Potential effect of today’s reading

In response to post-pandemic inflation, central banks worldwide including the Reserve Bank of New Zealand are taking measures to mitigate its effects. Today Thursday 8th of August 2024 by 7:00am GMT +4 (Dubai time), inflation expectation q/q is expected to be released by RBNZ.

What does this data measure?

This data reflects the anticipated annual price fluctuations of goods and services over the next two years, as projected by business managers. The most recent data released on May 13, 2024, at 2.33%, represents the lowest figure recorded since November 2021.

Fig. 1 New Zealand Inflation Expectation q/q 

Source: forexfactory.com

Reason for recent global inflation:
The recent global inflation can be attributed to factors such as expanded money supply, increased social benefits, reduced job creation and various other impacts of the pandemic. Years after, the effects of these economic policies are evident. Inflation globally is an enemy to economic growth; reason most central banks has dual mandate to: control price (inflation) and keep people on the job.

Inflation in New Zealand 

The surge in rent, food and fuel expenses in recent years has significantly contributed to high inflation in New Zealand. These escalating costs are key factors driving the country's inflation levels. To this end, the Reserve Bank of New Zealand as the apex bank is poised to controlling inflation. The RBNZ's broad objective is to get inflation in the 1 - 3% range over the long run (with an ideal target of around 2%). At the same time, the RBNZ's job is to try to achieve this whilst maintaining a healthy employment rate (making sure New Zealanders that want to work find jobs). The RBNZ targets a modest inflation level because low inflation levels help businesses to thrive.

Similarly, just like the FED, RBNZ has maintained interest rate at 5.50% for eight consecutive reading. While New Zealand inflation rate is at 3.3%, the U.s inflation is 3%.

Fig. 2 New Zealand Inflation Rate - percent

Source: tradingeconomics.com/ Statistics New Zealand

Measures Used by Central Banks to Curb Inflation

Central banks implement various strategies to combat inflation and prevent the economy from falling into deflation, hyperinflation or recession. These measures are crucial in maintaining stability and ensuring sustainable economic growth. Measures used by the banks to control inflation includes fiscal and monetary policy.

            Fiscal policy refers to the use of government spending and taxation to influence economic conditions especially macroeconomic conditions. These includes aggregate demand for goods and services, employment, inflation and economic growth. While Monetary policy is a set of tools used by the central bank to control the overall money supply and promote economic growth and employ strategies such as revising interest rates and changing bank reserve requirements.

Potential Effect of Today’s reading on the Kiwi

As a catalyst, today’s reading as expected by market participants would likely cause some volatility in the market, mostly with NZD pairs. Hence traders and investors look forward to taking advantage of this volatility which could be risky and rewarding at the same time. 

NZDUSD as at the time of print struggles to push higher and is currently resisted at 0.60274 after it broke a major resistance of 0.59800 which now serves as support on Wednesday as a result of favorable readings from NZD’s employment change 0.4% actual against -0.2 forecast and unemployment rate 4.6% against 4.7%.

 If there’s a favorable reading today, as per analyst view: NZDUSD would likely surge with potential target at 0.60406 and 0.60833 further breakout isn’t ruled out. While a negative data would likely cause Kiwi to decline with potential target at 0.59800, 0.59500 and 0.59140 further decline to 0.58570 isn’t rule out. With the RSI currently above the over sold region of 70 could also hint a retracement.

Fig. 3 NZDUSD, trading view 1H