The upcoming New Zealand quarterly CPI release is often a strong catalyst for Kiwi volatility.
Will the latest read show sticky inflation conditions and prompt speculation of a more hawkish RBNZ stance ahead?
Catch up on the event before planning out your price strategy and risk management moves!
Event in Focus:
New Zealand Consumer Price Index (CPI) and inflation data for Q3 2023
When Will it Be Released:
October 17, 2023 (Tuesday), 9:45 pm GMT
Use our Forex Market Hours tool to convert GMT to your local time zone.
Expectations:
Consumer Inflation Rate q/q: +1.9% forecast vs. +1.1% previous
Consumer Inflation Rate y/y: +5.8% forecast vs. +6.0% previous
forecast as of October 15, 2023, 5:00 pm GMT
Relevant Data Since Last Event/Data Release:
Food price index jumped by 8.9% y/y in August, 9.6% y/y in July
ANZ commodity prices up 1.3% m/m in September, down by -2.9% m/m in August, -2.6% m/m in July
New Zealand Manufacturing Index for September fell to 45.3 vs. 46.1
Producer output prices for Q2 was 0.2% q/q (0.2% q/q previous); Input prices were -0.2% q/q vs. 0.0% q/q previous
NZIER’s Quarterly Services of Business Opinion for Q3: “Pricing pressures have eased while cost pressures remain intense”
New Zealand quarterly inflation expectations ticked higher from 2.79% to 2.83% q/q, suggesting a potential pickup in price pressures over the next two years ticked higher from 2.79% to 2.83% q/q, suggesting a potential pickup in price pressures over the next two years
Previous Releases and Risk Environment Influence on NZD
July 18, 2023
Overlay of NZD vs. Major Currencies Chart by TradingView
Event results / Price Action:
Back in July, New Zealand reported that consumer inflation was up by 1.1% q/q in Q2 2023 vs. 1.2% in Q1, 0.9% expected. This sparked a quick pump higher in the Kiwi against the majors currencies, which was ultimately taken as another shorting opportunity in the intraweek price downtrend and risk-off environment.
Risk environment and intermarket behaviors:
Escalating tensions in Ukraine and arguably net negative economic data from the major economies got traders pricing in higher interest rates and rising recession probabilities.
This theme carried weight through the whole week, prompting capital to flow to safe haven currencies like the Greenback and Swiss franc.
April 19, 2023
Event results / Price Action:
New Zealand’s Q1 CPI slumped from 1.4% to 1.2% quarter-over-quarter versus the projected increase to 1.5%, dampening RBNZ tightening hopes as energy prices tumbled.
Prior to this, the RBA and BOC already paused their interest rate hikes, leading Kiwi traders to price in a similar decision from the RBNZ now that inflationary pressures slowing.
The Kiwi, which tested its intraweek highs ahead of the CPI release on Wednesday, quickly reversed the rallies upon seeing the actual numbers and wound up as the second weakest major currency for the week.
Risk environment and intermarket behaviors:
The spotlight was on inflation and monetary policy biases throughout the week, as CPI and jobs figures from major economies were on the docket.
Although most CPI releases pointed to slowing price pressures, upbeat employment data and a handful of PMIs hinted at a prolonged period of higher borrowing costs, spurring risk-off flows on recession fears.
With that, safe-haven assets and lower-yielding currencies were on stronger footing while riskier bets easily gave up ground.
Price action probabilities:
Risk sentiment probabilities:
Geopolitical influences are likely to continue to have weight this week as the Israel-Hamas war continues to develop and more casualties are expected.
But it will have to contend with a forex calendar for traders’ attention, especially given the slew of top tier events including inflation updates from various major economies, a big round of economic updates from China, and central bank commentary, especially from the Federal Reserve.
Global economic indicators are expected to likely signal a slowing growth and sticky inflation environment, which may potentially influence traders to lean risk averse this week. At the same time, these same signals likely support both a peak in the rate hike cycle but a “higher for longer” expectations for rates. This may prompt some to lower their recession expectations bets.
All put together, especially with geopolitical risks in play, this may continue to prompt traders to lean risk-off this week, but anticipating this week’s risk environment outlook will be a very challenging endeavor due to the steady stream of economic updates and a wildly dynamic geopolitical environment.
A good practice for many in that scenario would likely to be in reactionary mode and adjust risk management plans accordingly.
New Zealand dollar scenarios:
Potential Base Scenario:
Based on the past two releases, the reaction to the NZ CPI event has been a strong directional move in the Kiwi, but broad risk environment was a factor as well. In the July release, broad risk sentiment quickly drew traders’ attention after a higher-than-expected NZ CPI (but below previous) read.
If expectations of a strong rate in price rises materializes and a broad risk aversion environment remains around the event we may see similar behavior to July’s release. An event rally may be the initial reaction but broad risk aversion vibes may draw in Kiwi sellers on the bounce.
One other thing to note is that Kiwi bears came out strong last week. The bearish vibes are strong and fresh, so a notable bounce in the inflation rate may not stir a significant bullish reaction, especially if broad risk-off catalysts are working and we don’t see an upside surprise in CPI relative to both expectations and previous reads.
Potential Alternative Scenario:
A below expectations / previous quarterly NZ CPI read is currently not expected and would likely draw in sellers from the fundamental side of the trader spectrum, which may also likely lead to technical momentum sellers coming into play as well.
In this scenario, the Kiwi may see intraweek momentum moves (similar to the April release) as traders price in the idea that economic conditions may be slowing in New Zealand and that the Reserve Bank of New Zealand has room to be less hawkish at their next monetary policy meeting.
Watch out for quality short NZD technical setups on the charts before considering a risk management plan, especially against “safe haven” currencies if geopolitical sentiment is still strongly influencing financial market behavior negatively this week.
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