New Zealand Dollar drops sharply after worse than expected consumer inflation data. CPI rose 0.1% qoq in Q1, below expectation of 0.3% qoq. Annually, CPI slowed to 1.5% yoy, down from 1.9% yoy and missed expectation of 1.7% yoy. Tradeable CPI dropped -0.4% yoy while non-tradeable CPI rose 2.8% yoy.

CPI has been persistently weak and remained below mid-point of RBNZ’s 1-3% target range for the eight consecutive quarter. Indeed, CPI has only breached 2% level once in Q1 2017 (2.2%) since 2011. Yesterday, RBNZ Governor Adrian Orr noted that “possibilities of first quarter inflation numbers being undershot have already being factored in the RBNZ’s dovish bias”. The downside surprise is giving Orr an even worse picture and solidifies the imminent need for policy easing.

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NZD/USD drops sharply to as low as 0.6666 after the release, then recovered on strong Chinese data. Nevertheless, break of 0.6713 support confirms resumption of whole decline from 0.6938. Failure to sustain above falling 4 hour 55 EMA EMA also affirms near term bearishness.

NZD/USD should now be on track to 0.6551 support next.

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