The New Zealand Dollar to US Dollar is trading below the 200 DMA, placed at 0.6906. The Kiwi has underperformed as the USD gained strength over the week.
New Zealand Dollar to US Dollar at 0.6844
The NZD/USD fell sharply from the April 5, 0.7035 levels to close lower at 0.6844 on Friday, April 8, 2022. High inflation and tight labor are factors that weaken the NZD/USD.
High inflation hits the common man in New Zealand. The cost of living is high, and household expenditure continues to zoom upwards. The labor market is tumbling with a supply chain crisis and high inflation, weakening the New Zealand Dollar, one of the top-most traded currencies.
Reserve Bank of New Zealand
ANZ predicts that inflation will be at 7.4% in the next quarter. Inflation is at a 30-year high of 5.9%, and an increase of another 1.5% will worsen the situation, weakening the New Zealand Dollar to US Dollar in the forex market.
The Reserve Bank of New Zealand has described inflation as a situation in which money loses its value. The central bank had predicted inflation to be at 6.6% in 2022, but the Russian invasion of Ukraine has made matters worse. Inflation is soaring higher, especially in commodity prices.
Previously, in June 1990, inflation was at 7.6%. Inflation was at 9% in the quarter ended March 1988. At this point, high inflation almost destabilized the country. The same situation should not occur again, warn analysts.
Crude prices are trading above $100 in 2022. Higher crude prices affect New Zealand’s transport sector and other retail sectors, hitting individual household expenses. Prices of goods and services are moving higher.
After the covid pandemic, the Russian invasion of Ukraine is driving commodity prices higher.
New Zealand is a major producer of food products like dairy and meat. It depends on animal feed products from Ukraine. If New Zealand does not get its supply of animal feeds from Ukraine, it may result in higher dairy prices. Inflation is already eating into common households, and expensive dairy products will add to their woes.
The ANZ World Commodity Price Index is at 3.9% in March. High prices are affecting the dairy and metal sector.
The aluminum price increase affects industrial production.
GDT Price Index improved is at -1.0%, while it was previously at -0.9%.
Russian War on Ukraine
Apart from the human suffering, the Russian attack on Ukraine is causing a global economic shock.
The Russian attack on Ukraine has created a worldwide supply crunch.
Russia is the chief exporter of crude oil, wheat, and sunflower oil. Ukraine is rich in minerals, sunflower oil, and wheat. The conflict in Ukraine has hit the global supply system, which faces a severe disruption.
Though New Zealand has a very small trading relationship with Russia and Ukraine, commodity prices are driving higher in New Zealand. Crude petrol prices have risen to 14-year highs. The sanctions imposed by the Western countries on Russia are driving crude prices higher, especially as Russia is the chief exporter of crude oil.
Ukraine is the breadbasket of Europe. If situations do not return to normal by the next quarter, the world will face a severe shortage of wheat and corn. Ukraine helps to supply neon gas used in semiconductor chips. It exports almost 50% of the global neon gas. Any supply tightening will affect the global markets, especially in car manufacturing.
Military aggression by Russia is causing geopolitical tension, despite talks between officials to bring the conflict to an end. It sends ripples of economic crisis, especially in Europe.
Europe is one of the largest importers of Russian natural gas, getting almost 40% of its supply. But Russia demands payment in Rubles for its natural gas.
Covid cases are climbing higher with the emergence of new variants. Cases are rising in Auckland and Canterbury. Hospitals are getting crowded, and intensive care units are filling up, say authorities.
US Dollar Surges towards the 100 Mark
The Dollar index closed at 99.75 on Friday, April 8, 2022.
The US yield surged higher with the hawkish approach from the Federal Reserve. It hit a three-year high, trading above 2.7% last week. The US Dollar index spiked to 100 for the first time in two years. The Feds policy tightening has the greenback trading higher. The fed is working towards curbing inflation, which pulls the US Dollar index prices higher. The strong US Dollar is dragging the New Zealand Dollar value lower in the forex currency market.
The greenback against the Yen is at 124.32, at multi-year high levels. In particular, the USD/JPY spiked sharply in March and April.
The EUR/USD slipped to 1.0876 on Friday as the energy crisis looms large with the Ukraine war continuing for more than a month. The Euro is moving lower for the seventh straight session.