Risk aversion overshadows hot NZ Q4 CPI data: NZDUSD

In a reversal of roles, Australian Q4 CPI data released earlier this week has proved to be a reliable predictor of inflation in New Zealand, as annual inflation in New Zealand accelerated to a 30 year high earlier today.

New Zealand

 

Headline consumer prices rose by 1.4% q/q, taking the annual inflation rate to 5.9%, up from 4.9% in the September quarter. As expected, Covid disruptions, strong commodity prices, and wider global inflation contributed to a significant lift in tradable (imported) inflation (+6.9%).

Elsewhere, gains in non-tradable or domestic inflation were especially strong driven by increases in construction prices, labour shortages, and transport costs.

Non-tradable inflation represents over half of all the items in the CPI basket. With little ability to influence tradables or imported inflation, the RBNZ will be aiming to slow down non-tradable inflation with rate hikes. 

The RBNZ lifted the overnight cash rate twice in 2021 to 0.75%. As inflation is now almost twice the top of the RBNZ’s target band, there is little in the way to stop the RBNZ from lifting the overnight cash rate back to neutral at 2.5% by mid-2023.   

Despite the higher inflation number and expectation of future RBNZ rate hikes, the NZDUSD has been taken hostage by this morning’s FOMC event, which has resulted in a solid bout of risk aversion across regional equity markets.

The chart below shows that the NZDUSD has broken below the multi-month trend channel support noted earlier in the week at .6660/50. While below here, there is scope for the decline to extend towards .6550 and then to .6500c in the medium term.

NZDUSD Daily Chart 27th of Jan

Source Tradingview. The figures stated areas of January 27th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

 

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account