Q1 NZ CPI – the calm before the storm: NZD/USD

Just a day after the Australia - New Zealand travel bubble opened, allowing travel between the two countries without requiring quarantine on arrival, we take this opportunity to preview the March quarter New Zealand CPI number, due to be released at 8.45 am tomorrow.


As background, at last week’s meeting, the RBNZ left the Overnight Cash Rate (OCR) on hold at 0.25% and no changes were made to the Large Scale Asset Purchases or the Funding for Lending programs.

In the accompanying statement, the RBNZ said it expected to maintain these settings until it is confident “that consumer price inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at or above its maximum sustainable level”

Similar to what is forecast to happen in other developed economies in the coming months, the impact of the weak base effects from 2020 is expected to see inflation in NZ jump considerably towards the middle of 2021. After the base effects fade, inflation will revert towards the lower half of the RBNZ’s 1-3% target range.

The March quarter CPI number tomorrow will represent the calm before the inflation storm with expectations centered on a rise of +0.7% QoQ and +1.4% YoY. Gains limited by the end of increases in tobacco excise and an easing in unseasonably high food prices at the end of last year.

What does this mean for the NZD/USD?

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Technically the decline from the Mid March .7270 high to the recent .6943 low is viewed as the final leg of a three-wave correction from the .7465 high.

Last week’s break above horizontal resistance at .7070 and the downtrend resistance from the .7465 high, following the RBNZ interest rate meeting was a positive indication the NZD/USD uptrend had resumed.

From here, leaning against a band of support between .7100c and .7070c, the preference is to consider buying dips towards .7150 in the NZDUSD, looking for a test of the layer of resistance between .7270 and .7300c.

Keeping in mind, a break and close above .7320ish would then put a retest of year-to-date highs at .7465 on the radar.

Q1 NZ CPI the calm before the storm NZD USD

Source Tradingview. The figures stated areas of the 20th of April 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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