New Zealand CPI dropped -0.5% qoq in Q2, matched expectations. That’s the first quarterly fall in inflation since December 2015 quarter. Petrol prices dripped -12% qoq, biggest quarterly decline since December 2008 quarter. Annually, CPI slowed to 1.5% yoy, down from 2.5% yoy, matched expectations too. Stats NZ prices senior manager Aaron Beck said “the COVID-19 pandemic has created a lot of volatility and uncertainty. These have resulted in some large price fluctuations as well as several measurement challenges.”

The data suggests that inflation could move back to target slower than RBNZ is expecting. The development reaffirms the easing case for the central bank ahead. It’s generally expected to expand the asset purchase program in the coming months. As RBNZ is also preparing the financial system for, negative rate is still a likely option to be adopted next year.

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NZD/JPY is steadily in range after the release, hovering around 4 hour 55 EMA. The rebound from 68.19 is seen as the second leg of the pattern from 71.66. This view is affirmed by the corrective structure, as well as the weak momentum as seen in 4 hour MACD. Even in case of another rise, upside should be limited by 71.66 high. Meanwhile, break of 69.66 support should confirm the start of the third leg to 68.19 support and below.

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