On Thursday, the New Zealand dollar managed to gain slightly, and NZD/USD traded at about 0.5998, up 0.05% for the day in the North American session. On Wednesday, the New Zealand dollar gained 1.2% before reversing the trend and closing with a gain of 0.7%.
The Reserve Bank of New Zealand closely monitors 2-year inflation expectations as this could translate into real inflation. The indicator dropped to 2.03% for Q3, down from 2.33% in the second quarter. One-year inflation expectations also fell significantly from 2.73% in Q2 to 2.03%.
Inflation has been moving on a downward path and dropped to 3.3% in Q2, the lowest level in 3 years and near the upper level of the central bank’s target range of 1%-3%. Although this supports the case for a rate cut at the central bank’s meeting on Aug. 14, an unexpectedly strong employment report has made matters more complicated for the RBNZ.
The inflation expectations release today was the last key event before the rate decision, although more turmoil in global markets may persuade policymakers to keep rates steady.
Markets are more dovish than the RBNZ and have priced in a rate cut next week, with more cuts expected before year-end.
