NZD/USD stems slide, inflation next – heochaua

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<li>New Zealand Services PSI eases to 48.8</li>
<li>New Zealand inflation expected to ease to 0.5%</li>
<p>The New Zealand dollar has edged higher on Tuesday. In the North American session, NZD/USD is trading at 0.6086, up 0.17%.</p>
<p>New Zealand’s economy has struggled in the fourth quarter and a soft services release won’t help things. The Performance of Services Index (PSI) slipped to 48.8 in December, a four-month low. This followed a November reading of 51.1. A reading below 50 indicates contraction. The low reading was driven by concerns over the cost of living and the economic slowdown.</p>
<p>New Zealand releases fourth-quarter inflation on Wednesday. The consensus estimate stands at 0.50% q/q, compared to 1.8% in the third quarter. On an annual basis, inflation fell in Q3 from 6.0% to 5.6% and the downtrend is expected to continue in the fourth quarter with a reading of 4.7%.</p>
<p>Another drop in inflation will put pressure on the Reserve Bank of New Zealand to lower interest rates from the current benchmark rate of 5.5%. The RBNZ hasn’t raised rates since April but has pushed against market expectations for a rate cut and warned that rate hikes are not off the table. The RBNZ doesn’t meet until February 28.</p>
<p>The markets were exuberant in December when Fed Chair Powell jumped on the rate-cut bandwagon. That excitement has dissipated somewhat as a March rate cut is looking less likely. A month ago, a quarter-point cut in March was priced at 75%; that has dropped to 42% currently, according to the CME’s FedWatch tool. Fed members continue to raise doubts about a March cut, saying that the markets are getting ahead of themselves. US economic data has been solid, which means that the Fed isn’t under pressure to lower rates right away.</p>
<p><strong>NZD/USD Technical</strong></p>
<li>NZD/USD is tested resistance at 0.6096 earlier. Above, there is resistance at 0.6119</li>
<li>There is support at 0.6052 and 0.6029</li>
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