NZD Traders Head Higher – RBNZ Inflation Expectations Data Due Monday August 8, 2022

The Reserve Bank of New Zealand inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this term the survey of expectations can be a NZD

NZD

The New Zealand Dollar (NZD) is the official currency of New Zealand and the tenth most traded currency in the world. Also called Kiwi, the currency is also used in several Pacific islands including Tokelau, Cook Islands, Pitcairn Islands and Niue. The history of NZD is long and dates back to 1934 with the establishment of the Reserve Bank of New Zealand. . Although far from being the most traded currency in the global forex market, the NZD still plays a key role. The NZD is considered a carry currency as it is a relatively high yielding currency. Traders typically buy NZD and fund it with a low-yielding currency such as Japanese Yen (JPY) or Swiss Franc (CHF). What factors affect the NZD? Compared to the US dollar or British pound, the NZD can be much more volatile and dependent on external economic stress or turbulence. Investors with a risk appetite often buy the currency, while fears and market crises put negative pressure on the NZD. There are also several factors that can specifically boost the NZD in the forex market. This includes dairy prices, as New Zealand is the largest exporter of whole milk powder in the world. A rise in milk prices can lead to spikes in the NZD. By extension, tourism figures are also important for NZD. This is due to the fact that New Zealand depends on tourism as a significant proportion of its economy. Tourism growth would indicate a higher NZD, and vice versa.

The New Zealand Dollar (NZD) is the official currency of New Zealand and the tenth most traded currency in the world. Also called Kiwi, the currency is also used in several Pacific islands including Tokelau, Cook Islands, Pitcairn Islands and Niue. The history of NZD is long and dates back to 1934 with the establishment of the Reserve Bank of New Zealand. . Although far from being the most traded currency in the global forex market, the NZD still plays a key role. The NZD is considered a carry currency as it is a relatively high yielding currency. Traders typically buy NZD and fund it with a low-yielding currency such as Japanese Yen (JPY) or Swiss Franc (CHF). What factors affect the NZD? Compared to the US dollar or British pound, the NZD can be much more volatile and dependent on external economic stress or turbulence. Investors with a risk appetite often buy the currency, while fears and market crises put negative pressure on the NZD. There are also several factors that can specifically boost the NZD in the forex market. This includes dairy prices, as New Zealand is the largest exporter of whole milk powder in the world. A rise in milk prices can lead to spikes in the NZD. By extension, tourism figures are also important for NZD. This is due to the fact that New Zealand depends on tourism as a significant proportion of its economy. Tourism growth would indicate a higher NZD, and vice versa.
Read this term mover.

2-year inflation expectations hit a 30-year high in the previous release. As did 1 year. The chart below is via Bank.

By Westpac:

inflation expectations for the third quarter should not increase significantly, but they will probably remain at a high level

As I posted earlier:

  • The higher expectations will fuel the NZD as a bullish factor at the margin (and vice versa). The RBNZ is in a rate hike cycle due to above-target CPI. The next RBNZ rate hike is scheduled for August 17 (New Zealand time).

The (short-term) rating levels for NZD/USD that I monitor are:

  • just above 0.6210 (Friday low)
  • towards 0.6250 then just above 0.6280

A quick look at a short-term chart will show these are interesting areas. There is a bit of a gap (my perception of gaps is not quite classic) 0.6250 -0.6285 which I think will be attractive.

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