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Highest New Zealand Inflation Since 2011 Pushes AUD/NZD to Six-Week Lows

Consumer prices in New Zealand are rising at their fastest rate in more than five years, said Statistics New Zealand today.

CPI rose 1% in Q1, ahead of the market forecast of 0.8% and Q4-2016’s 0.4%. The rise brings annualized inflation to 2.2% – its highest since September 2011.

The New Zealand dollar jumped on the news from 0.70 to 0.7044 against the US dollar, and AUD/NZD fell from 1.07 to 1.0643.

Statistics New Zealand, who survey 2800 shops each quarter to gather data on consumer prices, said that fruit now costs 16% more than it did three-months ago and that alcohol and tobacco prices have risen 4% (cigarettes by 9.7%). New Zealand’s housing market continues to grow, demonstrated by household and housing utilities costs increasing this quarter by 0.6%. The average price in New Zealand of a litre of 91 octane petrol is now $1.90, up 4.4% on last quarter and up 12.4% from a year ago.

New Zealand’s central bank, the RBNZ, had not been expecting above-2% annual inflation until 2019, so today’s data will come as something of a surprise to the Bank’s governing committee. At last month’s RBNZ meeting, Governor Graham Wheeler affirmed the committee’s view that New Zealand’s official cash rate will remain at accommodative levels for a “considerable period.” In spite of this, following CPI traders have added to bets of a hike in the rate from its record low at 1.75%. Prices in overnight index swaps now suggest an 80% probability of the RBNZ raising rates within the coming 12-months.

 

NZ Inflation Adds to AUD/NZD Woes, Pair Tumbles in Line with Iron Ore



AUD/NZD 3 Month Chart

On Saturday on BestExchangeRates we reported on the fourth consecutive week of declines in the price of iron ore – a commodity that Australian export income relies heavily upon.

Unfortunately, any expectations for a let up in the commodity’s fall have proven ill-founded. Iron ore has fallen again this week, settling on Wednesday in the NYMEX futures market at USD 70.95 and USD 63.19 per metric ton for April and May contracts respectively.

The continued fall in iron ore is driving the Australian dollar lower, especially against the New Zealand dollar, which has been boosted this week by a much better-than-previous rise in the Global Dairy Trade Index and this morning’s CPI.

The fall in iron ore comes in spite of reassuring economic data from China on Monday (China are by far the world’s largest consumer of iron ore), in which GDP, industrial production and retail sales all comfortably beat market expectations and previous readings.

“The price slump [in iron ore] is being driven by both sides of the market equation with a surge of supply hitting at the same time that demand is throttling back and massive stockpiles of iron ore are building up at Chinese ports”, said Australia’s ABC News today.

BestExchangeRates readers looking to position themselves ahead of any further falls in the Australian dollar-to-New Zealand dollar exchange rate can use our online comparison calculators to easily determine the cheapest providers of AUD-NZD travel money and foreign currency transfers.

 

Joel Wright Author: Joel Wright

Joel has been involved in the markets for the past 10 years. During that time he’s worked in market analysis teams in London, in the financial technology sector in Singapore – working mostly with automated trading tools and algorithms – and most recently he’s been planning FX risk hedging for an SME in Bangkok. Joel has a first-class honours degree in Financial Services and currently writes about foreign exchange for several global businesses.

You can get in touch with Joel via email here or via the contact page.
Please note that the opinions of our authors are their own and do not reflect the opinion of BestExchangeRates and should not be taken as a reference to buy or sell any financial product. Full Disclaimer

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