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FX Analysis

NZD strengthened amid a higher-than-expected NZ Q3 CPI

New Zealand currency spread on a table

The third quarter NZ CPI printed at 2.2% MoM and 4.9% YoY, much greater than economists forecast at 4.1% YoY. No doubt, the data projects that RBNZ will increase OCR even higher in the next meeting on 24 November after the first rate-hike of 25 basis points in October since March 2020. Some economists forecast RBNZ will raise the OCR by 50 basis points to 1% in November.

The NZD has strengthened after the CPI data was released. NZD/USD surged 0.46%, to the intraday high at 0.7104 before the pair pulled back to 0.7081 at local time 4:17 pm. At the time, NZD/AUD was up 0.23%, to 0.9557. And NZD/JPY rose 0.15%, to 80.92. The NZD uptrend momentum has been strong since 13 October when the USD was weakened due to a pullback of the US treasury yield. And the strong CPI data might lift it even higher in the near term.

Auckland came into the hardest lockdown since the second half of August, and other regions have been staying in semi-lockdowns. However, economists believe the NZ economy will adapt and rebound quickly once the country reopens, as the vaccination rate has been accelerating and the renewed government subsidy scheme helps businesses and jobs. Westpac economists expect the Q4 GDP will rise 4.5% after an estimated 5.5% drop in Q3, followed by a 2.2% lift in the first quarter in 2022.

Nonetheless, China's economic growth is slowing and the global disruption to supply chains continue to negatively affect the NZ economy. The tightened labour markets and rising energy prices are putting ongoing pressure on inflation, in turn lifting the expectation for a more aggressive rate hike from RBNZ.


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