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NZD/USD Risks Fresh Record-Highs on Strong New Zealand Inflation

NZD/USD Risks Fresh Record-Highs on Strong New Zealand Inflation

2014-07-15 17:00:00
David Song, Currency Strategist
Share:

- New Zealand Consumer Price Index (CPI) to Increase for First-Time in 2014.

- Headline Inflation of 1.8% Would Mark the Fastest Pace of Growth Since 4Q 2011.

Trading the News: New Zealand Consumer Price Index

Heightening price pressures in New Zealand may push the NZD/USD to fresh record-highs as it puts increased pressure on the Reserve Bank of New Zealand (RBNZ) to take a more aggressive approach in normalizing monetary policy.

What’s Expected:

NZD/USD CPI

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, RBNZ Governor Glenn Stevens may sound increasingly hawkish at the July 23 policy meeting as the faster recovery raises the risk for inflation, and the central bank may do little to halt the ongoing appreciation in the local currency as it helps to achieve price stability.

For Real-Time Updates and Potential Trade Setups on the New Zealand Dollar, sign up for DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ANZ Consumer Confidence (MoM) (JUN)

--

3.4%

Producer Price Index- Input (QoQ) (1Q)

--

0.9%

Employment Change (QoQ) (1Q)

0.6%

0.9%

Rising input prices along with the pickup in household confidence may encourage New Zealand firms to pass on higher costs, and a stronger-than-expected CPI print may heighten the bullish sentiment surrounding the kiwi as it fuels bets for additional rate hikes in the second-half of 2014.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product s.a. (QoQ) (1Q)

1.1%

1.0%

Retail Sales ex Inflation (QoQ) (1Q)

0.9%

0.7%

Average Hourly Earnings (QoQ) (1Q)

1.0%

0.7%

Nevertheless, the headline reading for inflation may disappoint amid subdued wage growth paired with the slowdown in private consumption, and a dismal inflation print may spark a larger correction in the NZD/USD as it drags on interest rate expectations.

Read More:

Price & Time: Focus Still on the Antipodeans

NZDUSD Opening Range Setup- Rally Vulnerable Sub 8850

How To Trade This Event Risk(Video)

Bullish NZD Trade: 2Q CPI Climbs 1.8% or Greater

  • Need green, five-minute candle following the release to consider a long New Zealand dollar trade
  • If market reaction favors buying sterling, go long NZD/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish NZD Trade: Headline Reading for Inflation Disappoints

  • Need red, five-minute candle to favor a short NZD/USD trade
  • Implement same setup as the bullish New Zealand dollar trade, just in the opposite direction

Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Outlook Remains Bullish as Price Continues to Carve Higher Highs & Lows
  • Interim Resistance: 0.8841 (2011 High) to 0.8850 (61.8% expansion)
  • Interim Support: 0.8600 (23.6% retracement) to 0.8630 (61.8% expansion)

Impact that the New Zealand CPI report has had on NZD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q 2014

04/15/2014 22:45 GMT

1.7%

1.5%

-36

-10

1Q 2014 New Zealand CPI

NZD/USD Risks Fresh Record-Highs on Strong New Zealand Inflation

The headline reading for New Zealand inflation unexpectedly slowed during the first three-months of 2014, with the CPI figure slipping to an annualized 1.5% from 1.6% in the fourth quarter. The New Zealand dollar struggled to hold its ground following the dismal print, with the NZD/USD moving back below the 0.8600 handle, but the higher-yielding currency pared the losses during the North American trade to close at 0.8622.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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