Release: NZ Consumer Price Index q/q (4Q) Consensus Forecast: 0.4% Previous: 0.4%
Release: NZ CPI y/y (4Q) Consensus Forecast: 2.6% Previous: 4.6%
Date/Time: 1/18/12 4:45 PM ET (21:45 GMT)
Will Kiwi Feel the Impact from Inflation Data:
The New Zealand dollar has been stronger than the Australian dollar of late, especially when looking at the two against each other, but also when looking at both against the US dollar.
Both will be heavily impacted by the ongoing slowdown in growth in China but Australia may be prone to a sharper correction if China heads for a hard landing.
Today we have data from New Zealand which should be important for the central bank - that is the consumer price index for the fourth quarter. Now unlike most developed nations New Zealand releases its inflation data on quarterly terms and so each one of these carries more weight then we attribute to the monthly readings we get out of the US, Europe, UK, and others. Australia also only post government inflation statistics once per quarter but it does have some private monthly inflation gauges.
The expectation for consumer prices is for a gain of 0.4% q/q which would match the reading we had in the 3Q. But it is more instructive to look at the annual rate as that is expected to cool considerably.
The expectation for annual rates is for a cooling to 2.6%, which should ease pressure on the RBNZ to raise rates as it continues to be in a wait-and-see mode as it assess the impact on the NZ economy from global conditions.
RBNZ Meets Next Week, Market Doesn't See Any Change in 2012
The Reserve Bank of New Zealand lowered interest rates to 2.5% following a destructive earthquake last year and has kept rates at those low levels as the global economic situation deteriorated in the second half of the year mainly due to the euro zone sovereign debt crisis.
Therefore we'll see if the Wednesday CPI report can shift these expectations.
In the simplest terms, a stronger than expected report will increase the pressure on the RBNZ, and can help boost the NZD while a weaker than expected report will decrease the pressure on the central bank and could weaken the NZD.
AUD/NZD - Technical and Fundamentals Line Up
Looking at the daily view of the AUD/NZD we have seen an important breakdown over the last 2 weeks as we pushed through key support and then worked our way through the 200-daily ema. The prospect for a further retracement remains with targets to the downside 1.2820 and 1.2710.
In the fundamental case, we again take a look at the OIS swaps market to gauge the expectation for the Reserve Bank of Australia's interest rate.
As we can see above, while the market sees the RBNZ holding rates flat 1 year from now, in the case of the RBA, the market is pricing in a 100 basis point reduction. That should help support the New Zealand Dollar against the Australian Dollar from an interest rate differential perspective.
Today's report can help tip the scales a bit further in favor of the NZD if inflation data comes in stronger than expected. However, even if we get a status-quo report which hits the consensus forecast, the divergence in interest rates should help the AUD/NZD to continue it recent downswing.