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Kiwi Slides as New Zealand CPI Unexpectedly Falls in Fourth Quarter

Kiwi Slides as New Zealand CPI Unexpectedly Falls in Fourth Quarter

Trang Nguyen,

THE TAKEAWAY: N.Z. Consumer Price Unexpectedly Falls in October> Key Rate is widely Expected to Maintain from the Record Low 2.5 Percent > the Kiwi Immediately Dropped vs. Major Currencies

New Zealand economic activity deflated for the first time in 2 years in the final three months of 2011, eliminating most of the possibility of rate hike in the central bank meeting next week. The Consumer Price Index, which released on a quarterly term, unexpectedly dropped 0.3 percent in the fourth quarter, Statistics New Zealand reported today. The print follows a rise of 0.4 percent in the September 2011 quarter and 1.0 percent in the June 2011 quarter. Inflation data surprised the market participants as economists polled by the Bloomberg News had widely projected for a gain of 0.4 percent. In the year to the December 2011 quarter, the Consumer Price Index rose 1.8 percent compared to 4.6 percent increase for the year to the September 2011 quarter. The reading missed consensus forecast of 2.6 percent also.

New Zealand Consumer Price Index (QoQ): March 2008 to Present

011812_NZ_Consumer_Prices_4Q_body_Picture_1.png, Kiwi Slides as New Zealand CPI Unexpectedly Falls in Fourth Quarter

Prepared by Trang Nguyen

New Zealand’s Consumer Price Index surprisingly dropped in the fourth quarter as a result of significant downward contribution from the food group. Among five groups that decreased in price, food prices fell 2.2 percent, triggered by 25 percent decrease in prices for vegetables. Meanwhile, communication prices moved down 3.5 percent due to lower Internet charges and international phone calling rates. In contrast, gain in transport and health service, housing and household utilities help prevent the consumer price index slipping further.

NZD/USD 1-minute Chart: January 18, 2012

011812_NZ_Consumer_Prices_4Q_body_Picture_4.png, Kiwi Slides as New Zealand CPI Unexpectedly Falls in Fourth Quarter

Charts created using Strategy Trader– Prepared by Trang Nguyen

The kiwi strengthened versus most of its major peers except its euro and Swiss franc trading partners during the North American trading session today. Regardless, soft inflation report triggered a bearish reaction in the New Zealand dollar. As can be seen from the one-minute NZDUSD chart above, the NZD/USD pair immediately plunged 40 pips from 0.8070 to 0.8030. The Relative Strength Indicator crossing below 30-level, an oversold territory, indicated that currency traders were aggressively selling the kiwi in favor of the greenback. At the time this report was written, the currency pair traded at 0.80346.

Lower-than-expected fourth-quarter CPI figure will ease pressure on the Reserve Bank of New Zealand to lift interest rate in the intermediate future. According to Credit Suisse overnight index swap, market participants see a merely 7 percent chance for a 25 basis point rate move at the policy meeting being held next Thursday. Given “unusual degree of uncertainty” to the global outlook, “moderate home demand” and “under-control inflation”, interest rate hike becomes highly unlikely.

--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com

To contact Trang, email tnguyen@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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