NZ CPI coming up, what will it mean for NZD/USD?

New Zealand Consumer Price Index is coming up and the data is expected to that show consumer prices rose 7.4% YoY – the fastest increase since 1990 (in the wake of the July 1989 GST increase from 10 to 12.5%).

''Consensus expectations are for a slightly lower 7.1% print, and the RBNZ in the April Monetary Policy Review said they expected inflation would “peak around 7 percent in the first half of 2022”, '' analysts at ANZ Bank said. 

Key quotes

''Whatever the headline inflation number, we suspect it’ll be the details of the release that will concern the RBNZ the most. Key measures of core inflation are already above the RBNZ’s 1-3% target band – and it’s likely underlying inflation pressures only continued to increase in Q1.''

''The data are likely to add further pressure to the RBNZ to rapidly remove monetary stimulus – including we think by lifting the OCR by 50bps to 2% at the May MPS.''

How might it affect NZD/USD?

NZD/USD has been firmly bid and was just over 1% higher for the day on Wednesday as Wall Street draws to a close. The US dollar was sliding as US yields corrected which gave a boost to risk apatite and the commodity complex. 

The technical outlook for the data is as follows:

If there is anything short of expectations, the Bird could come under a lot of selling pressure, in line with the illustration above considering the resistance. On the other hand, there could also be a sell the fact scenario considering how far the bird has rallied already overnight. Otherwise, it it could be a matter of a deeper test of resistance from the get-go. 

Why it matters to traders?

With the Reserve Bank of New Zealand's (RBNZ) inflation target being around the midpoint of 2%, Statistics New Zealand’s quarterly Consumer Price Index (CPI) publication is of high significance. The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.