As it stands, a Bloomberg News poll of economists is forecasting a 50 basis point reduction to 3.75 percent, while Credit Suisse overnight index swaps are closer to pricing in a 100 basis point reduction to 3.25 percent, and combined with a sharp drop in CPI, this sentiment could weigh on the Australian dollar. However, there is significant potential for these results to reflect resilient price pressures, as the producer price index for the same period showed that input cost growth rose to a record high of 6.4 percent (year-over-year). If this is indeed the case, the Australian dollar could rally sharply overnight.
Meanwhile, a decline in New Zealand's consumer price index during Q4 for the first time in two years and by the most in ten years has added to speculation that the Reserve Bank of New Zealand will cut interest rates on Wednesday at 15:00 ET, despite the fact the annual rate remains above the central bank’s 1-3 percent inflation target at 3.4 percent. As it stands, both a Bloomberg News poll of economists and Credit Suisse overnight index swaps are forecasted a 100 basis point reduction to 4.00 percent, and such a move could weigh on the New Zealand dollar. However, if the RBNZ suggests in their policy statement that they may refrain from cutting rates any further, the currency could actually rally.
Related Article: Australian Dollar Weekly Trading Forecast, New Zealand Weekly Trading Forecast
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