NZD/USD traders start to roll up their sleeves for RBNZ's Survey of Expectations

• The kiwi was little changed by the end of the North American session.
• NZD/USD will now become a significant focus in forex markets. 
• The RBNZ Survey of Expectations for Q4 is released today. 

NZD/USD is under pressure in the close of Wall Street as the US dollar attempts to correct some of the losses on the session. The kiwi, however, is little changed in the absence of domestic drivers so far this week. At the time of writing, the pair trades flat at 0.6993 and has stuck to a tight 0.6979 / 0.7020 range.

The day was slightly risk-off which weighed on the higher beta currencies. Equities were down on the day due to concerns over inflation following the UK's stronger Consumer Price Index coupled with the US's earlier in the week.

The mighty US dollar drifted to the downside and ducked below a 16-month high that was printed on Tuesday. Nevertheless, it can be expected to remain elevated and money markets are now pricing in a high probability of a Fed rate increase in June, followed by another in November.  CME data suggest a 50% probability of a 25 bps rate hike by July 2022. 

The dollar index, DXY, which measures the currency against a basket of six rivals, was down around 0.08% into the close on Wall Street. It was trading at 95.843 at the time of writing and within the day's range of between 95.734 and 96.241. Yesterday's high was 96.266, the best level marked since mid-July 2020. The dollar's rise has also pushed broader FX market volatility higher, with one gauge rising to an 8-month high of nearly 7%.

Time to focus on NZD

''This is all part and parcel of the volatility that we have seen as global markets grapple with turning points and rising inflation, and locally ahead of next week’s RBNZ MPS,'' analysts at ANZ Bank said. 

 ''As the inflation theme takes hold elsewhere (eg UK CPI was stronger overnight), that is seeing a relative re-pricing of the NZD, potentially fanning headwinds. In the wake of a slew of bumper NZ data releases, upside surprises may now be harder to come by.''

This brings us to today's key even. The RBNZ releases the Q4 Survey of Expectations. The headline figure here is the 2-year-ahead inflation expectations measure – which is watched closely for signs that expectations are drifting away from the 2% target.

''The RBNZ’s survey usually lines up well with our own Business Outlook – and if that continued in Q4, then we should see a sizeable uptick in expectations,'' the analysts at ANZ Bank explained. 

''But with inflation running at 4.9% (and we think it’ll flirt with 6% in Q1), an increase wouldn’t be too much of a surprise. The real test will be if the 5- and 10-year-ahead measures remain at 2%, since that’s an indication of whether people believe the RBNZ will be successful at getting surging inflation under control. The Survey is the final key data the RBNZ gets before next week’s MPS.''