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NZD/USD rallies toward seven-week high after New Zealand CPI

Brown Brothers Harriman says NZD support comes from above-target inflation, with swaps pricing further tightening toward the top of the RBNZ neutral range.

Reported · Written up by our desk · Major Pairs

NZD/USD edged higher toward a seven-week high after New Zealand’s Q2 Consumer Price Index came in slightly above consensus but still just below the Reserve Bank of New Zealand’s projection, according to Brown Brothers Harriman.

BBH’s Elias Haddad said the inflation data strengthens the case for more RBNZ rate hikes. Headline CPI rose 1.5% quarter over quarter, versus 1.4% consensus and the RBNZ’s 1.6% forecast, and year over year inflation quickened to 4.1% versus 4.0% consensus and the RBNZ’s 4.2% projection.

The report noted the pickup was driven by higher petrol prices, while core inflation rose to the top of the RBNZ’s 1% to 3% target range. Haddad said swaps markets are pricing “significant tightening” toward the upper end of the RBNZ neutral range, which he views as NZD supportive.

The RBNZ last raised its Official Cash Rate by 25 basis points to 2.50% on July 8 and indicated that further OCR increases appear likely at upcoming meetings, BBH said.

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