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New Zealand Dollar Sinks After Lowest CPI Print in 17 Years

New Zealand Dollar Sinks After Lowest CPI Print in 17 Years

2016-01-19 23:52:00
Bradley A. Kearns, Daniel Dubrovsky,
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Talking Points:

  • NZD/USD dropped after New Zealand CPI figures disappointed traders
  • 4Q inflation was 0.1% (YoY) versus 0.3% expected and 0.4% in 3Q
  • Soft data increased the markets’ speculation for an RBNZ rate cut

See how retail traders are positioned in the New Zealand Dollar with DailyFX SSI.

The Kiwi sank against the US Dollar as worse-than-expected New Zealand inflation figures crossed the wires. The headline print for the fourth quarter was a positive 0.1 percent (YoY) gain, the lowest showing since 1999. The consensus forecast was for a 0.3 percent increase and the third quarter was a reading of +0.4 percent. The quarterly CPI gauge also disappointed by contracting 0.5 percent, the lowest mark since 2008. Traders were expecting a decline of 0.2 percent and the previous figure was positive 0.3 percent.

In its most recent monetary policy announcement, the Reserve Bank of New Zealand cut rates to 2.5 percent. The central bank believes that current interest rate levels are appropriate for inflation to reach its 1 to 3 percent target. In addition, the RBNZ also forecasted that this target will be reached in early 2016. Today’s CPI release showed inflation is actually heading in the wrong direction of what the central bank expects.

Indeed, the rather disappointing news flow weighed on New Zealand front-end government bond yields, which fell with its currency. This indicated that the markets’ believe the data increased the likelihood of a near-term RBNZ rate cut. According to overnight index swaps, there is a 10 percent probability of a rate cut at the central bank’s January 27th meeting.

New Zealand CPI Figures

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