NZD/USD moves below 0.5650 following RBNZ Inflation Expectations

NZD/USD struggles as RBNZ's latest monetary conditions survey reveals a mixed outlook for Q1 2025 across various time frames.
NZ two-year inflation expectations declined to 2.06% in Q1 from 2.12% in Q4 2024.
Stronger-than-expected US inflation data has reduced the likelihood of a dovish Fed stance for the June policy meeting.

NZD/USD continues to decline for the second consecutive day, trading around 0.5640 during Thursday’s Asian session. The pair remains under pressure following the release of New Zealand’s (NZ) inflation expectations. The Reserve Bank of New Zealand’s (RBNZ) latest monetary conditions survey presented a mixed outlook for the first quarter of 2025 across different time frames.

NZ two-year inflation expectations, which are closely watched as they reflect the time frame when RBNZ policy actions influence prices, declined to 2.06% in Q1 from 2.12% in Q4 2024. Meanwhile, the average one-year inflation expectation rose to 2.15% in Q1 from 2.05% in the previous quarter.

The New Zealand Dollar (NZD) remains under pressure amid rising speculation of further rate cuts by the RBNZ. The central bank is set to hold its first monetary policy meeting of the year next week, following three rate cuts in 2024 that brought borrowing costs down to 4.25% in response to mild inflation.

In the United States (US), the US Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI) rose 3.0% year-over-year in January, exceeding expectations of 2.9%. The core CPI, which excludes food and energy, increased to 3.3% from 3.2%, surpassing the forecast of 3.1%. On a monthly basis, headline inflation jumped to 0.5% in January from 0.4% in December, while core CPI rose to 0.4% from 0.2% over the same period.

Stronger-than-expected US inflation data has led traders to scale back expectations of a dovish Federal Reserve (Fed) stance for the June policy meeting. According to the CME FedWatch tool, the probability for the Fed to reduce interest rates in June has eased to almost 30% after the US inflation data release.

Economic Indicator

RBNZ Inflation Expectations (QoQ)

The Inflation Expectations released by the Reserve Bank of New Zealand measures business managers´ expectations of annual CPI 2 years from now. An increase in expectations is regarded as inflationary which may anticipate a rise in interest rates. A high reading is positive (or bullish) for the NZD, while a low reading is seen as negative (or bearish).