Can the RBNZ resume its tightening cycle anytime quickly?

The upcoming New Zealand quarterly CPI launch might need some clues!

Occasion in Focus:

New Zealand Client Worth Index (CPI) and inflation knowledge for Q2 2023

When Will it Be Launched:

July 18, 2023 (Tuesday), 10:45 pm GMT

Use our Foreign exchange Market Hours instrument to transform GMT to your native time zone.

Expectations:

• Headline CPI q/q: +0.9% forecast vs. +1.2% earlier

Related Information Since Final Occasion/Information Launch:

• Meals value index jumped by 1.6% m/m in June, following meager 0.3% and 0.5% positive factors in Could and April respectively
• ANZ commodity costs down by 2.3% m/m in June, following 0.4% uptick in Could and 1.7% stoop in April
• Producer enter costs posted a bleak 0.2% q/q uptick in Q1 vs. 0.5% estimate, producer output costs up by 0.3% q/q vs. projected 0.8% achieve
• RBNZ survey of inflation expectations confirmed that estimates for one yr forward fell from 5.11% to 4.28% for and two years forward declined from 3.30% to 2.79%
• Labor value index dropped from 1.1% to 0.9% q/q in March 2023 quarter vs. estimates of no change

Earlier Releases and Threat Atmosphere Affect on NZD

April 19, 2023

Occasion outcomes / Worth Motion:

New Zealand’s Q1 CPI slumped from 1.4% to 1.2% quarter-over-quarter versus the projected enhance to 1.5%, dampening RBNZ tightening hopes as vitality costs tumbled.

Previous to this, the RBA and BOC already paused their rate of interest hikes, main Kiwi merchants to cost in an identical resolution from the RBNZ now that inflationary pressures slowing.

The Kiwi, which examined its intraweek highs forward of the CPI launch on Wednesday, shortly reversed the rallies upon seeing the precise numbers and wound up because the second weakest main foreign money for the week.

Threat atmosphere and intermarket behaviors:

The highlight was on inflation and financial coverage biases all through the week, as CPI and jobs figures from main economies had been on the docket.

Though most CPI releases pointed to slowing value pressures, upbeat employment knowledge and a handful of PMIs hinted at a chronic interval of upper borrowing prices, spurring risk-off flows on recession fears.

With that, safe-haven property and lower-yielding currencies had been on stronger footing whereas riskier bets simply gave up floor.

January 24, 2023

Occasion outcomes / Worth Motion:

New Zealand’s This autumn 2022 CPI got here in barely stronger than anticipated at a 1.4% achieve versus the projected 1.3% enhance. Nonetheless, this was slower than the sooner 2.2% quarter-over-quarter leap in value ranges.

Surprisingly, the Kiwi didn’t have a lot of a bullish response to the upbeat headline readings, even slumping in opposition to the Aussie a couple of hours later when Australia printed a lot stronger than anticipated CPI knowledge.

Because it turned out, the annual New Zealand CPI studying was nonetheless in need of the 7.5% central financial institution expectation because it solely got here in at 7.2% within the fourth quarter of the earlier yr. With that, the Kiwi moved largely sideways in opposition to its counterparts for the remainder of the week.

Threat atmosphere and intermarket behaviors:

This buying and selling week was a busy one by way of financial catalysts, because it was marked by a bunch of top-tier inflation releases, the BOC resolution, and the U.S. superior GDP launch.

Nevertheless, value motion was comparatively subdued, as main monetary hubs in Asia had been closed for the Lunar New 12 months holidays. Some enhancements in flash PMI readings launched early on saved danger urge for food supported, though some figures nonetheless pointed to contractionary situations.

Expectations of a slower tempo of rate of interest hikes from the Fed additionally helped help danger property, as this led merchants to ease up on recession fears.

Worth motion possibilities:

Threat sentiment possibilities:

Merchants appear to be in a risk-off temper to this point this week, as the newest knowledge dump from China turned out largely under expectations, significantly when it got here to GDP development.

In the present day’s U.S. retail gross sales report doubtlessly shifted the bias as its weaker-than-expected/earlier learn possible sparked sentiment that decrease odds of additional Fed fee hikes must be priced in. This was characterised by a pop greater in anti-dollar property, most notably in equities, gold and oil in the course of the morning U.S. session.

Barring any main information occasions main as much as the NZ CPI occasion, it’s possible merchants will lean anti-dollar / risk-on effectively into the Wednesday session.

New Zealand greenback eventualities:

Potential Base Situation:

One other dip in quarterly CPI (present anticipated situation) may reinforce the view that the RBNZ’s aggressive tightening strikes are taking impact and that the central financial institution is more likely to sit on its fingers for for much longer.

Main indicators similar to inflation expectations, which are likely to have a self-fulfilling impact, plus PPI and FPI figures are additionally pointing to subdued value pressures. Word that RBNZ policymakers themselves have reiterated that home inflation is slowing and that they’re not foreseeing main OCR adjustments within the close to future.

With that, the Kiwi could possibly be poised for sharp declines, particularly if danger aversion extends its keep within the markets. On this case, look out for potential quick NZD performs in opposition to currencies with extra hawkish central banks, like EUR and GBP. AUD could also be a viable counter foreign money situation as effectively given the broad risk-on lean in the mean time.

Potential Various Situation:

A stronger than anticipated CPI learn may nonetheless be sufficient to revive RBNZ tightening hopes, particularly for the reason that present annual fee stays waaay above the central financial institution’s 1-3% inflation goal.

Take into account that quantity crunchers from ANZ and Westpac have famous that housing prices, significantly on the subject of hire, and rising grocery and takeaway meals costs may nonetheless put upside stress on shopper inflation.

Market watchers may additionally hone in on “non-tradeable inflation” which could nonetheless be elevated and sufficient to squeeze out one other 0.25% fee hike earlier than the tip of the yr.

If underlying inflation elements level to cussed value pressures and danger urge for food picks up, NZD might need an opportunity at pulling up in opposition to currencies with comparatively cautious central banks like JPY, particularly if broad risk-on sentiment is in play on the time of launch.

One factor to be conscious of in both situation above is positioning, in that NZD merchants dumped the foreign money arduous in the course of the Tuesday Asia session commerce. This will likely restrict additional promoting potential, however once more, we’ll simply should see the place the NZ CPI knowledge lands earlier than contemplating the diploma in bias shift/volatility on NZD pairs.