AUD/NZD sticks to post-New Zealand CPI losses near weekly low, lacks follow-through

AUD/NZD retreats sharply from a nearly two-year peak touched earlier this Wednesday.
The softer New Zealand CPI print brings forward RBNZ rate cut bets and might cap gains.
Speculations that RBA could hike rates again should contribute to limiting the downside.

Haresh Menghani FXStreet

The AUD/NZD cross witnessed an intraday turnaround from the 1.1150 region, or its highest level since October 2022 touched during the Asian session on Wednesday and drops to the lower end of the weekly range in the last hour. Spot prices currently trade around the 1.1085-1.1080 region, down nearly 0.40% for the day.

Data published by Statistics New Zealand earlier this Wednesday showed that the headline Consumer Price Index (CPI) rose 0.4% QoQ compared to 0.6% in the previous quarter and analysts' forecasts. Moreover, the annual CPI inflation rate fell from the 4% YoY rate in the March 2024 quarter to its lowest rate in three years, at 3.3% in Q2. The New Zealand Dollar (NZD), however, rallied across the board following the release of softer data and turns out to be a key factor exerting heavy downward pressure on the AUD/NZD cross.

Meanwhile, the strong intraday move lacks any obvious fundamental catalyst and could be solely attributed to some NZD short-covering and is more likely to remain limited amid bets that the Reserve Bank of New Zealand (RBNZ) will cut interest rates soon. Furthermore, expectations that the Reserve Bank of Australia (RBA) could raise interest rates again could lend some support to the Australian Dollar (AUD) and help limit the downside for the AUD/NZD cross. This, in turn, warrants some caution before confirming that spot prices have topped out.

Moving ahead, investors now look forward to the release of monthly employment details from Australia, due during the Asian session on Thursday. In the meantime, hopes for additional stimulus from China might act as a tailwind for the China-proxy Aussie and the AUD/NZD cross. Hence, it will be prudent to wait for strong follow-through selling before positioning for any meaningful corrective decline for the currency pair.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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