New Zealand’s Quarterly CPI and NZD/USD Analysis
As uncertainty in global markets is gradually rising due to European elections as well as Geopolitical situations. In these times we will have the 1st look on New Zealand’s quarterly inflation data (CPI Q/Q) which are due at 22.45 GMT on Wednesday.
As most of the analysts are expecting a 0.8% rise in Q/Q figure, so expectations are on higher side.
Let’s have a look at New Zealand’s economy throughout 1st quarter of 2017.
Throughout the last quarter, New Zealand’s economy grew steadily. It also outperformed Australian economy in various aspects like employment and service index. Also, last service index report showed that New Zealand’s service has expanded to the highest levels since 2007. Prices of dairy products in Global Dairy Trade (GDT) auction, also rose for continuously 3 times, which is very good sign for New Zealand’s key economic sector.
NZD/USD also remained around 0.7100 levels on average throughout last quarter and these levels are not so much expensive and it is good news for RBNZ and NZ economy as lower currency results in better margins for exporters.
A lower currency, better margins generates more disposable income in an economy which results in a higher consumer demand and eventually higher inflation number. So keeping all these factors in find, we can see that why expectations are so high.
How these CPI number will affect NZD/USD prices
You will see in the below-mentioned chart of NZD/USD that prices are moving in a specific channel between 0.7400 levels to 0.6800 levels since last year. There is a big resistance level around 0.7350 levels and there are 2 big support levels around 0.6900 and 0.6800 levels.
So basically there are 4 scenarios
1. If CPI data disappoint mildly which has a low probability of happening then NZD/USD can come down to test 0.6900 level’s support and will bounce back.
2. If CPI comes in negative territory which has nearly 0 probability then NZD/USD can breach 0.6900 levels and will test bigger support of 0.6800 levels in near future as the market will be hoping for a very Dovish commentary from RBNZ on 11th May meeting.
3. But if CPI comes as expected then NZD/USD will have a good bounce from 0.6980 levels to at least 0.7100 levels which were the average price for NZD/USD throughout last quarter.
4. And if CPI beats the expectations and shows an increase of 1% or more then NZD/USD will have a very strong chance to test 0.7350 resistance levels or it can also test last year October’s high i.e 0.7485 in near future because these CPI figures will force RBNZ to turn hawkish in next meeting. The market will also expect a rate hike this year from them.
Also, Dollar is also getting beaten up at this point of time in the market as FED and White-House are sidelined right now.
Also, a stable and a solid New Zealand economy backed by higher rates will favor NZD as safe heaven asset in this quarter as uncertainty in world markets are high due to France, UK, and Germany elections. North-Korea and Syria’s situations also not helping the markets. White house also delayed its plans on Tax and Fiscal policy.
So if CPI number comes good then New Zealand Dollar will be a clear winner in this quarter.