Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Inflation data and Fed Testimony to set direction for Kiwi

Domestic inflation data and Fed Testimony to set direction for the Kiwi.

By Garry Dean (Sales Trader, CMC Markets New Zealand)

The kiwi has proven resilient over the past week, and continues to find solid support just beneath 0.8800 ahead of Wednesday’s inflation data. The market is forecasting the Q2 CPI number to print at +0.4%, giving an annualised reading of 1.8% - a reading which would likely seal an additional 25 pt OCR increase from the RBNZ later this month. With the majority of the market looking for a July rate hike, followed by another later this year, the risk for the Kiwi is clearly a weaker CPI read which forces the RBNZ to pause. Governor Wheeler will be encouraged by REINZ numbers released yesterday showing a sharp 4% decline in Auckland house prices last month, with sales volumes dropping 12.3% nationally on the month.

Tuesday night sees the result of the latest GlobalDairyTrade auction, which will again be viewed closely. With falls recorded in 9 of the past 10 auctions, and dairy prices down 34% in NZ Dollar terms this year, it looks increasingly likely that Fonterra will be revising their $7.00 starting point for the 2015 season to somewhere closer to $6.40. With exporter commodity prices declining, and the TWI posting a post-float high of 81.97 just yesterday, the pressure is clearly building on the export sector. The longer this pressure builds, the greater the risk that the next move lower in the Kiwi will be a sharp descent, as opposed to an orderly correction.

The release last week of the Minutes from the June FOMC meeting suggested the FED are comfortable to leave rates lower for a “considerable time” after QE tapering ends in October. Since the June meeting we have seen a strong payrolls number, with US unemployment dropping to 6.1%, encouraging some market participants to suggest the FED may consider adjusting policy settings going forward. If the Fed were to adjust policy settings on the back of improving economic data we could see a strengthening of the US Dollar, and a subsequent fall in the Kiwi. A clearer picture will emerge when Fed Chair Janet Yellen delivers her semi-annual testimony to the Senate Banking Committee tonight.

Yellen has recently been prepared to look through signs of increasing inflation pressures, a view recently endorsed by Fed member Kocherlakota. There are, however, a number of Fed members expressing concerns that inflation is nearing the Fed’s 2% inflation target. Concerns that continued accommodation may see the Fed lose control of inflation, and risk destabilising financial markets if they are forced to hike rates faster and higher than they wanted to were expressed by Fed member Plosser on Friday.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Shocking Dairy Footage: MPI Failing Our Animals And Damaging Our Reputation

Greens “Nathan Guy needs to urgently look into how his ministry is enforcing animal welfare standards, how these appalling incidents happened under its watch and what it’s going to do prevent similar incidents happening again in the future." More>>


Land & Water Forum: Fourth Report On Water Management

The Land and Water Forum (LWF) today published its fourth report, outlining 60 new consensus recommendations for how New Zealand should improve its management of fresh water and calling on the Government to urgently adopt all of its recommendations from earlier reports. More>>



Welcome Home: Record High Migration Stokes 41-Year High Population Growth

New Zealand annual net migration hit a new high in October as more people arrived from than departed for Australia for the first time in more than 20 years. More>>


Citizens' Advice Bureau: Report Shows Desperate Housing Situation Throughout NZ

CAB's in-depth analysis of over 2000 client enquiries about emergency accommodation shows vulnerable families, pregnant women and children living in cars and garages, even after seeking assistance from the Ministry of Social Development and Housing New Zealand. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news