The NZ dollar is the big mover early in the Asia session, with the commodity currency being assaulted by sellers after some disappointing inflation data. NZ Q3 consumer prices rose 0.3% q/q, missing an expected 0.5% increase. This brings year-on-year inflation to 1.0% from 1.6% previously.
Today’s data is likely to greatly reduce any motivation the Reserve Bank of New Zealand (RBNZ) has to tighten monetary policy in the foreseeable future. The bank went on a tightening cycle earlier this year in response to a very hot property market, but prices have since cooled. And today’s numbers show that inflation was well below the RBNZ’s target last quarter which has pushed it to the bottom of the bank’s 1-3% target range.
Investors, banks and other market players immediately began to push back their expectations for interest rates in NZ on the back of today’s figures. In fact, it’s entirely possible that the RBNZ will leave monetary policy alone until late 2015. The determining factor may be the kiwi, which is holding back tradable inflation – non-tradable inflation rose 0.5% q/q, while tradeable inflation only rose 0.1% q/q.
If the NZD dollar doesn’t fall materially then the RBNZ is likely to step-up its efforts to weaken the currency. This could involve everything from jawboning to actual intervention in the FX market. The RBNZ hasn’t been shy about selling NZDs in the past and we expect it will closely monitor market conditions so it can pick the best time to dump more NZD on the market. Recently, the bank has favoured times of anticipated weak volumes as it maximizes the effectiveness of its operations in the FX market.
The kiwi
NZDUSD is looking weak both from a fundamental and technical perspective after today’s inflation figures. We outlined the fundamental weakness above – a decreasing chance of tighter monetary policy is bad news for the fragile kiwi – and technically the pair is looking primed to break out of its medium-term upward trend. RSI has broken out of similar trend and MACD has turned bearish very quickly. However, we would be cautious about getting too bearish before we witness a confirmed break of the channel shown below.
Source: FOREX.com
Recommended Content
Editors’ Picks
EUR/USD hovers around 1.0700 ahead of German IFO survey
EUR/USD is consolidating recovery gains at around 1.0700 in the European morning on Wednesday. The pair stays afloat amid strong Eurozone business activity data against cooling US manufacturing and services sectors. Germany's IFO survey is next in focus.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold: Defending $2,318 support is critical for XAU/USD
Gold price is nursing losses while holding above $2,300 early Wednesday, stalling its two-day decline, as traders look forward to the mid-tier US economic data for fresh cues on the US Federal Reserve interest rates outlook.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin (WLD) price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.