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Trading the News: New Zealand Consumer Price Index (CPI)

Updates to New Zealand’s Consumer Price Index (CPI) may fuel the recent rebound in NZD/USD as the headline reading for inflation is expected to widen to 1.7% from 1.5% per annum in the second-quarter of 2018.

Image of DailyFX economic calendar

Signs of stronger price growth may heighten the appeal of the New Zealand dollar as it puts pressure on the Reserve Bank of New Zealand (RBNZ) to lift the official cash rate (OCR) off of the record-low, and the central bank may start to change its tune at the next meeting on November 7 especially as ‘GDP growth in the June quarter was stronger than we had anticipated.’

However, a below-forecast print may rattle NZD/USD as it encourages the RBNZ to carry the wait-and-see approach into 2019, and Governor Adrian Orr & Co. may keep the door open to further support the economy as ‘downside risks to the growth outlook remain.Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

2Q

2018

07/16/2018 22:45:00 GMT

1.6%

1.5%

+16

+15

2Q 2018New Zealand Consumer Price Index (CPI)

NZD/USD 15-Minute Chart

Image of nzdusd 15-minute chart

New Zealand’s Consumer Price Index (CPI) picked up during the three-months through June, with the headline reading climbing to 1.5% from 1.1% per annum in the first-quarter of 2018. A deeper look at the report showed the weakness was led by a 5.6% decline in the cost for fruits/vegetables, with prices for clothing also narrowing 1.2% from the previous year, while transportation costs increased another 2.0% on the back of higher energy prices.

Household spending in New Zealand increased 0.1% during the first three-months of 2018, with the previous reading revised down to reflect a 1.4% expansion versus an initial reading of 1.7%. A deeper look at the report showed demand for electrical goods increasing 5.4%, with sales of furniture/housewares climbing 2.4%, while discretionary spending on clothing/footwear narrowed 5.0% during the same period.

NZD/USD bounced back from 0.6755 region despite the below-forecast print, with NZD/USD largely holding steady throughout the remainder of the day as the exchange rate closed at 0.6783. Learn more with the DailyFX Advanced Guide for Trading the News.

NZD/USD Daily Chart

Image of nzdusd daily chart
  • Broader outlook for NZD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) track the bearish formations from earlier this year, but the lack of momentum to break below the 0.6370 (50% retracement) to 0.6430 (78.6% expansion) hurdle raises the risk for a near-term rebound.
  • In turn, the 0.6600 (23.6% retracement) to 0.6630 (78.6% expansion) region sits on the radar as it largely lines up with channel resistance, with a break of the bearish structure raising the risk for a change in NZD/USD behavior.
  • Next topside region of interest comes in around the former-support zone around 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion) followed by the Fibonacci overlap around 0.6780 (100% expansion) to 0.6790 (50% expansion).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide!

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.