The New Zealand dollar (NZD) has taken a hit, dropping to its lowest level in three months following the release of inflation data from the United States. The data revealed an acceleration in inflation, while spending rebounded in January.

This data has led to concerns that the Fed may be forced to raise rates sooner than anticipated. These movements could lead to strengthening the US dollar and weakening other currencies, including the NZD.

According to the data, the PCE (Personal Consumption Expenditures) index rose by 0.6% in January. In addition, the index gained 0.2% over the past 12 months, above the Federal Reserve’s target of 2%. These figures suggest that inflationary pressures are building in the US economy, which could prompt the Federal Reserve to take action to cool things down.

As a result of this news, the NZD/USD pair consolidated at 0.6165, representing a decline of 1.02% from its previous level. The market will likely keep a close eye on the Federal Reserve’s next moves, as any indication of a shift towards tighter monetary policy could lead to further declines in the NZD.

Natural Disasters and Recession Concerns For NZD

Adding to the NZD’s troubles are concerns about how New Zealand will financially deal with the devastating flood that occurred earlier this month. The cost of repairing the damages from the flood is likely to be significant, which could strain the country’s finances.

Furthermore, analysts at the Reserve Bank of New Zealand (RBNZ) have predicted a recession in 2023. This prediction is due to a combination of factors, including the ongoing impact of the Russia-Ukraine war, a slowdown in the housing market, and uncertainty around global trade.

If this prediction comes to pass, it could lead to the RBNZ slowing down its rate hikes, which would be another blow to the NZD. In addition to the concerns around inflation and the impact of the recent floods, the latest economic news out of New Zealand has also been troubling.

According to the most recent data, quarterly retail sales in the country dipped by over 0.6%, missing the predicted increase of 0.2%. Even more concerning is that core retail sales, excluding auto sales, fell by 1.29%, far below the expected increase of 0.3%. This disappointing performance in the retail sector indicates the beginning of a recession in New Zealand.

Technical Analysis

Looking at the daily chart for the NZD/USD pair, we can see that the overall trend is a decline, with the pair hitting its lowest level in three months at .6165. A drop through this level would confirm the downtrend, while a move above .6380 would signify a reversal toward an uptrend.

As of the week’s close, the pair was hovering around the resistance level of .6467, which marks a retracement zone. How traders react to the level of .6165 on Monday will likely determine the market direction for the second last day of February.

If the pair sustains a level below .6165, a bearish signal could create a downward spiral to the target level of .605. On the other hand, if buyers win the day and the pair moves above .6165, it will indicate a bullish cycle and could target the level of .6232, confirming an uptrend.