Forex Today: NZD/USD gets slammed in early Asia (NZ CPI miss)

Markets were positive overnight, with the benchmarks on Wall Street eking out further gains which helped U.S. yields high. The US 10yr treasury yield climbed from 2.55% to 2.59% - a one-month high and the chances of a Fed rate cut by December remained at 50%.

U.S equity benchmark performances

Wall Street benchmarks reaching for blue skies; DJIA stochastics are overbought

• The Dow Jones Industrial Average (DJIA), +0.26% added 68 points, or 0.3%, at 26,452.45.
• The S&P 500 index eeked out a very modest 0.1% to 2,907.
• The Nasdaq Composite Index added 24.21 points, or 0.3%, to 8,000.23.

US data

"US industrial production fell 0.1% in March, weaker than expected; capacity utilization edged down to 78.8% from 79%. The National Association of Homebuilders’ sentiment survey increased slightly in April, to 63 from 62, led by a firming in the prospective buyers sub-index, likely attributable to lower mortgage rates fostered by the Fed’s patient stance," analysts at Westpac explained.

NZ CPI main event in early Asia

In early Asia, the big news was the NZ CPI data that missed and sent the bird tumbling over a big figure while two-year swap rates fell 9bps on expectations of a rate cut from the RBNZ.

NZ Consumers Price Index, March quarter 2019:

• Quarterly change: 0.1% (Westpac: 0.2%, market: 0.3%, RBNZ: 0.2%)
• Annual change: 1.5% (Westpac: 1.6%, market: 1.7%, RBNZ: 1.6%)

"The weakness in the quarterly result – and the surprise relative to forecasts – was entirely in the tradables prices component. Petrol prices were down 7% on average over the quarter, and international airfares saw a large seasonal decline. Meanwhile, pricing power remains muted in import-heavy categories such as electronics and home furnishings," analysts at Westpac explained, arguing that The Reserve Bank can look through today’s result to some degree:

"The surprise was largely in tradables prices, which are more volatile and tend to be more transitory. Nevertheless, even with petrol prices heading up again in recent weeks, it looks likely that inflation will remain substantially below the 2% midpoint of the target over the remainder of this year. The RBNZ’s dilemma remains whether the economy can generate enough domestic price pressure to get overall inflation back to 2% on a sustained basis."

Currency action in US session

The bird was trading as high as 0.6796 in New York, and drifted along towards the data, falling to a low of 0.6667 on the release and recovering back to the 0.67 handle in the aftermath. 

As for AUD/USD, following yesterday's  RBA minutes that included a discussion of the scenario that could prompt a rate cut and why this would support the economy, including a weaker AUD, the pair respected a range of  0.7165 to a low of 0.7140 overnight.

In other pairs, analysts at Westpac noted the key highlights in the G10s with EUR slipping from 1.1315 to 1.1280, "undermined by a Reuters story citing ECB sources saying that they thought the official outlook for Eurozone growth to recover was too optimistic."

"GBP/USD is -0.5c on the day to 1.3050, also hurt by a newswire sources story, this one claiming a lack of progress in UK government Brexit talks with Labour."

"USD/JPY was little changed around 112."

Key notes from prior trade

• NZD/USD slumped 100+ pips after New Zealand CPI disappoints

• NZ CPI: Arrives as a miss at 0.1% Q/Q and a miss Y/Y at 1.5%

Key events ahead

China’s March industrial production, retail sales, and Q1 GDP reports are due at  10am local time /0200 GMT

"Headline GDP growth was 6.4%yr in Q4 18, with a median forecast of 6.3% in Q1. There seems to be little danger of a notable surprise on GDP, given that annual growth has printed no further than 0.1ppt from the Bloomberg median forecast every quarter since Q2 2015,"

analysts at Westpac explained