Talking Points:

  • Private sector inflation expectations rose to 2.11% in 1Q 2018 from 2.02% in Q4 in 2017
  • The New Zealand Dollar rose more than 0.5% against its major counterparts
  • The firming in inflation expectations comes on the heels of a dovish RBNZ policy meeting

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The New Zealand Dollar spiked nearly half of a percent against its major counterparts following the release of the 2-year inflation expectation survey conducted by the RBNZ. Businesses that were surveyed increased their forecasts to 2.11 percent in the first quarter from 2.02 prior. Local bond yields did not reflect similar exuberance, counterintuitive to the typical relationship between sovereign debt and its respective currency.

The RBNZ’s 2-year inflation expectations survey fell between the second and fourth quarter of 2017 to 2.02%, with this current release being the first positive forecast since then. The figures released today were stronger than the private sector’s prior forecast; this may coincide with the RBNZ’s position that “longer-term expectations are well anchored at 2 percent.”

The RBNZ’s latest policy meeting included some dovish rhetoric, as bank members acknowledged a weaker-than-expected CPI release prior to the meeting. The bank’s transparency on forward policy-guidance and their own inflation expectations may suggest why bond yields did not move as the currency did.

NZ Dollar Rose on Firming Private Sector Inflation Expectations