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- Annual inflation in New Zealand is expected to ease from 6% in the quarter to June to 5.9% in the three months to September.
- Markets expect inflation to be 2% in the third quarter compared to the previous quarter, accelerating from 1.1% recorded in the second quarter.
- The NZD/USD pair looks vulnerable following a move from a two-month high towards recent lows.
Statistics NZ will release Consumer Price Index (CPI) data for the September quarter on Monday 16 October at 21:45 GMT in New Zealand early on Tuesday. The data could be relevant for the New Zealand Dollar (NZD) and the Reserve Bank of New Zealand (RBNZ) which holds its next monetary policy meeting on November 28-29.
Annual inflation in New Zealand rises to 7.3% in June 2022. Price growth in the June first quarter has slowed to 2023, but remains within the RBNZ’s target range of 1% to 3%.
In the second quarter and compared to the previous quarter, inflation increased by 1.1%, slightly lower than the 1.2% recorded in the previous quarter, but higher than the market consensus of 0.9%. Despite high inflation, the RBNZ has kept the official cash rate unchanged at 5.5% for the past three meetings.
What to expect from the New Zealand inflation rate?
The Consumer Price Index (CPI) is expected to have increased by 2% in the third quarter compared to the previous quarter, an acceleration compared to the 1.1% increase recorded in the second quarter. It was the first acceleration in the quarterly rate since the third quarter of last year. The annual rate is expected to decline from 6% to 5.9% by the end of September. These numbers, or even a larger-than-expected number of negative surprises, will add pressure to the RBNZ, indicating that the current 5.50% interest rate may not be enough to bring inflation to the target within an acceptable timeframe.
“The panel agreed that monetary conditions are restraining spending and easing inflationary pressures as expected. Although supply constraints in the economy continue to ease, inflation remains very high. Spending needs to moderate to better adjust the economy’s ability to provide goods and services. Consumer price inflation is returning to its target range,” the RBNZ said on October 4. said in his last meeting that day.
The market expects the RBNZ to keep rates unchanged at its November meeting, but expects another rate hike in February. A higher-than-expected inflation reading could propel rate hike expectations to the November meeting. Conversely, a significant slowdown in inflation would dampen expectations of an imminent rate hike.
New Zealand held an election on Saturday, with Christopher Lacson expected to become the next prime minister. As the results are still being determined, it is unclear what government will be formed. Uncertainty surrounding government formation and elections had a limited impact on markets.
When will the Consumer Price Index be announced and how will it affect the NZD/USD pair?
Consumer Price Index (CPI) inflation data for the third quarter will be released at 21:45 GMT on Monday. The N ZD/USD pair hit a two-month high above 0.6050, but then fell sharply below 0.5900, driven by a stronger US dollar and risk aversion. This shift has made the short-term outlook neutral.
The main driver of the decline was the dollar. The dollar remained firm in the market with support from the latest round of US economic data, which showed a resilient economy, a tight labor market and inflation still above target.
If New Zealand’s inflation numbers come in higher than market consensus, expectations of a rate hike at the next RBNZ meeting could be boosted, resulting in a stronger Kiwi. However, a more significant bullish surprise in that direction would damage New Zealand’s economic growth prospects and therefore negatively impact Kiwis.
The short-term outlook for NZD/USD shows risks to the downside, but losses appear limited as long as the pair remains above the critical support zone at 0.5860. A break below 0.5800 will be the next target, opening the door for further losses.
On the upside, the 20-day and 55-day SMA are hovering around the 0.5955 area, which is an area of ​​significant interest. The next resistance level is located at 0.5980. However, an important level to watch is 0.6050 as it represents the recent high and the 20-week SMA, which acted as a resistance level in the previous week. A consolidation above this zone, targeting 0.6150, would suggest potential for further gains.
Kiwi isn’t charting a triple low, but it’s close (early September low of 0.5859, early October low of 0.5871 and Friday night low of 0.5884), and the technical outlook will be sour if the new cycle lower is low.
-ANZ
New Zealand Dollar Frequently Asked Questions
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known trading currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some peculiarities in moving NZD. The evolution of the Chinese economy tends to move Kiwis, as China is New Zealand’s largest trading partner. Bad news for the Chinese economy would translate into fewer exports to New Zealand, which would hurt the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. Higher milk prices increase export earnings, contributing positively to the economy and thus to the NZD.
The target of the Reserve Bank of New Zealand (RBNZ) is to achieve and maintain an inflation rate of 1% to 3% over the medium term. To do this, the bank sets appropriate interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but this move raises bond yields, makes it more attractive for investors to invest in the country and boosts the New Zealand dollar. Conversely, low interest rates weaken the NZD. The so-called rate differential, or what rates are in New Zealand or compared to rates set by the US Federal Reserve, can play a major role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can affect the appreciation of the New Zealand Dollar (NZD). A strong economy in terms of high economic growth, low unemployment and high confidence bodes well for the NZD. High economic growth attracts foreign investment and this economic strength may encourage the Reserve Bank of New Zealand to raise interest rates if it is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive overall market risks as low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the Kiwi. Conversely, the NZD weakens during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable havens.
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