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Talking Points:

  • New Zealand CPI printed at 1.6% y/y in 4Q vs. 1.5% expected
  • Inflation pickup stoked RBNZ interest rate hike expectations
  • Kiwi Dollar rallied to hit a 3-day high vs. USD after the data

The New Zealand Dollar (NZD) rose approximately 97 pips against the US Dollar - reaching a 3-day high - as the nation’s 4Q consumer inflation index (CPI) figures beat expectations. The quarter-over-quarter (QoQ) unexpectedly rose 0.1 percent through the three-month period against expectations of a modest contraction and a 0.9 percent pick up in price pressures in the 3Q. For the RBNZ’s more closely watched year-over-year (YoY) statistics, a 1.6 percent was a modest beat of the consensus pace (1.5 percent).

According to the NZ CPI 4th Quarter release, increases in housing and household utilities (up 3.2 percent annually) accounted for nearly half of the annual increases. Noted in particular were “the purchases of newly built houses (up 4.7 percent), rentals for housing (up 2.1 percent), property maintenance (up 4.3 percent), and electricity (up 3.0 percent). Increases in prices for cigarettes and tobacco were also noted as significant contributors.

This data presents a significant update to already buoyant interest rate expectations for the RBNZ. Central Bank Governor Wheeler has already warned the market that he expects more than 200 basis points (2 percentage points) worth of hikes through the first quarter of 2016. Though the inflation figure is still below the central bank’s target range, the data does well to feed speculation of the eventual hike.

The release of the results was promptly followed by a rally on the NZD/USD. After the release, the currency pair rallied a substantial 60 pips – a particularly strong move considering the currency and session. As a consequence of the data response NZD/USD broke nearby resistance seen at 0.8296 and has since continued to climb towards and test secondary levels of resistance at 0.8362.

New to Forex? Watch this video!

New_Zealand_Dollar_Rallies_as_Inflation_Data_Tops_Expectations_body_Clipboard10.png, New Zealand Dollar Rallies as Inflation Data Tops Expectations

Chart created by Gaven Yee using Marketscope 2.0

-- Written by Gaven Yee, DailyFX Research. Feedback can be sent to gyee@fxcm.com