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Talking Points:

  • New Zealand CPI ticked up to 1.9% in the third quarter from 1.5% in the previous
  • Reserve Bank of New Zealand is due to meet on November 7th to discuss changes to the official cash rate
  • Stronger CPI and increased rate hike expectations could fuel a rebound in the NZD

The New Zealand Dollar traded significantly higher Monday evening as New Zealand CPI was released to surpass expectations. Year-over-year CPI came in at 1.9%, a 0.4% increase from last quarter. Quarter-over-quarter CPI was 0.9% versus 0.7% forecasted and 0.4% in the second quarter. This marks the fastest growth in YoY and QoQ for the inflation measures since the third and first quarter of 2017 respectively. The uptick will likely influence Governor Adrian Orr’s RBNZ when they meet to discuss the official cash rate on November 7th.

NZD/USD Soars on CPI Beat, RBNZ Rate Hike Expectations

Currently, New Zealand’s official cash rate is at a record low 1.75%. The last change was a 25 basis point decrease in November 2016. The record low interest rate has done little to strengthen the NZD and thus any change perceived as hawkish in New Zealand’s monetary policy should boost the currency versus its counterparts.

Looking to the NZD/USD pair specifically, the CPI data was hotly anticipated. High expectations sent the NZD up to 0.6544 versus the greenback just before release.

See how our clients are positioned on different assets and currency pairs with IG Client Sentiment.

NZD/USD Price Chart 15-Minute, October 15th

NZD/USD Soars on CPI Beat, RBNZ Rate Hike Expectations

Following the release, speculators jumped on the opportunity to buy into a currency they saw as undervalued now that future rate hikes may come sooner than previously expected. Consequently, the kiwi traded to 0.6568 versus the USD at the time of this article. The buying and revised fundamental backdrop could also break the 6-month downtrend the kiwi finds itself in.

NZD/USD Price Chart Daily, Year-to-Date

NZD/USD Soars on CPI Beat, RBNZ Rate Hike Expectations

Compared to its Australian counterpart, the Kiwi rocketed higher. AUD/NZD traded notably lower following the CPI release as the RBNZ looks to leapfrog the Reserve Bank of Australia in terms of hawkish policy. The AUD/NZD pair dipped to 1.0829 at the time of this article, the lowest since late June.

AUD/NZD Price Chart Daily, Year-to-Date

NZD/USD Soars on CPI Beat, RBNZ Rate Hike Expectations

Consult our Economic Calendar for other important events and data releases due this week.

The rest of the week has a very light economic calendar with the exception of the FOMC’s September minutes due Wednesday. To see other data due this week, check out our economic calendar.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Other Top Stories:

Uptick in New Zealand Consumer Price Index (CPI) to Fuel NZD/USD Rebound – By David Song, Currency Analyst

FX Week Ahead: US Retail Sales, FOMC Minutes, CPI from NZ, UK, & Japan – By Christopher Vecchio, Senior Currency Strategist

S&P 500, Dow Rebound as Q3 Earnings Season Kicks off with Banks – By Peter Hanks, Junior Analyst

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.