Sharechat Logo

NZ dollar dives on weak CPI data, cushioned by strong China data

Wednesday 17th April 2019

Text too small?

The New Zealand dollar was sharply lower but off its lows as positive economic data from China and euphoria over the government’s decision to can a capital gains tax helped cushion the impact of a weaker than expected inflation print.

The kiwi was trading at 67.30 at 5pm in Wellington, off the day’s low at 66.95 and compared with 67.60 at 8am, while the trade-weighted index sank to 72.85 points from 73.21.

The Consumers Price Index for the March quarter came in at 0.1 percent, below market expectations of about 0.3 percent and the Reserve Bank’s 0.2 percent forecast. That took the annual inflation rate to 1.5 percent, below the central bank’s 2 percent target.

“The big news was the CPI miss,” says Mike Shirley, foreign exchange dealer at Kiwibank. “Just as the CGT announcement came out, we also had a raft of fairly positive Chinese releases.”

Prime Minister Jacinda Ardern said the public has spoken and she won't introduce a capital gains tax while she leads the Labour Party. 

The data from China showed its economy grew at a 6.4 percent annual pace in the March quarter, above expectations for a 6.3 percent growth rate.

As well, industrial production in China jumped 8.5 percent in the month of May while retail sales grew by 8.4 percent, both of those measures also well above expectations.

Such strong figures suggest that stimulatory measures the Chinese government has implemented are beginning to take effect.

Shirley says a Reserve Bank measure of underlying inflation came in at 1.7 percent in the March quarter, unchanged from the December quarter, also tempering the impact of the weak CPI print.

“It’s not a significant driver, but it muddies the waters a bit and may explain why the kiwi is holding up above the 67.20 level,” he says.

Nevertheless, Kiwibank’s economists are now predicting the Reserve Bank will cut its official cash rate from its present record low at 1.75 percent to 1.5 percent in May.

Certainly, the wholesale interest rate market reaction suggests the market is veering back towards that expectation after seeming to shrug off the possibility of an OCR cut so soon, in recent days.

The New Zealand two-year swap rate fell to 1.6389 percent from 1.7061 yesterday, but remains above its record low at 1.5475 on March 28, the day after the Reserve Bank changed its stance from neutral to expecting the next move in the OCR would probably be down.

The 10-year swap rate sank to 2.2550 percent from 2.2950.

The New Zealand dollar was trading at 93.59 Australian cents versus 94.23, at 51.52 British pence from 51.80, at 59.53 euro cents from 59.88, at 75.36 Japanese yen from 75.69 and at 4.5121 Chinese yuan from 4.5348.


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar falls; coronavirus spreads to more countries
Looking to $2,000 gold price: Coronavirus is the straw that broke the camel’s back
Hong Kong Stock Exchange Turns From Tough Year to Trading Boom
Treasury 10-Year Yield Tumbles to Record Low on Haven Demand
U.S. Stocks Plunge, Bonds Surge After CDC Warning
26th February 2020 Morning Report
NZ dollar takes a breather, likely to fall further
Hong Kong Stocks Are Trading at Lowest Versus World Since 2004
Stocks Tumble, Havens Gain on Rising Virus Concern
25th February 2020 Morning Report

IRG See IRG research reports