The Takeaway: New Zealand consumer price index rises less-than-expected -> Slow CPI growth provides confirmation for a steady interest rate in 2013-> NZD surges against all counterparts

The lower-than-expected first quarter CPI figure sent the New Zealand dollar higher against all counterparts. New Zealand consumer price index stood at 0.9 percent (YoY) in first quarter, versus 0.9 percent (YoY) in 4Q, meeting estimate set for 0.9 percent. The year-over-year headline figure marked the third consecutive quarter that it stayed below RBNZ’s CPI target of 1-3 percent. On a quarterly basis, consumer price index rose from -0.2 percent to 0.4 percent in first quarter, came in slightly shy of estimate set for 0.5 percent.

One of the concerns to RBNZ is the possible overheated housing market, yet the consumer price index report shows that prices of rented homes and home ownership both increased by merely 0.4 percent. Against this backdrop, the modest increase in the quarterly consumer price index provides confirmation to traders that the Reserve Bank of New Zealand (RBNZ) is likely to hold interest rate steady at 2.5 percent through 2013, thus preserving the high yield profile of the New Zealand dollar.

Market participants are expecting a 12 percent probability that the RBNZ will lift interest rate by 25 basis points in the next twelve month, according to Credit Suisse overnight index swap.

The lower-than-expected CPI figure sent the New Zealand dollar higher against all counterparts. In particular, the NZD/USD surged by 44 pips upon the release, and combined with the rebound during Tuesday US trading supported by risk appetite, it has recovered half of its dip yesterday. At the time of writing, the currency pair is trading at 0.85068.

NZD/USD 1 Minute Chart

Forex_News_Kiwi_Surges_As_N.Z_First_Quarter_CPI_Rises_Less-Than-Expected_body_Picture_1.png,  Kiwi Surges As N.Z First Quarter CPI Rises Less-Than-Expected

Chart Created by Robin Leung using Marketscope 2.0