The focus on Thursday will be on New Zealand’s headline consumer price index number at 2145 GMT. New Zealand will release its fourth-quarter of 2017 CPI that is forecasted to show an increase of 0.4% from 0.5% in the previous quarter. Also, the attention will turn on the kiwi as there is plenty of room for a surprise if the release beats expectations.
Consumer prices in New Zealand ticked higher to 1.9% year-on-year in the third quarter from 1.7% in the prior period and for the Q4 is predicted to remain unchanged at 1.9%. For now, inflation sits comfortably in line with the Reserve Bank of New Zealand’s (RBNZ) 1-3% target band.
Shifting to monetary policy, the RBNZ kept its official cash rate unchanged at record low of 1.75% in November 2017, as widely expected. The key rate last moved in November 2016 from 2.00% to 1.75%. and during the last meeting, the central bank stated that economic growth has continued to improve, although inflation and wages remain subdued.
Also, the gross domestic product growth rate for the third quarter advanced to 0.6%, slowing down after an upwardly revised reading of 1.0% expansion before. The RBNZ also mentioned that monetary policy will remain accommodative for a considerable period, as numerous uncertainties hold, and policy may need to adjust accordingly. It is worth mentioning that the country’s hourly wages increased to 30.51 NZD/hour in the third quarter of 2017 from 30.15 NZD/hour in the second quarter of 2017. The next policy meeting will take place on February 8 and the bank is widely expected to adopt a wait and see stance and keep the interest rate unchanged at 1.75% until June 2019 at the earliest.
Despite the relatively solid economic data however, businesses have become more pessimistic about the economy since the general election in September 2017. The elections showed a victory for the ruling National Party and the previous Prime Minister Bill English, with the Party winning 46% of the votes compared to 35.8% gained by the opposition Labour Party, but New Zealand’s proportional representation system means neither won enough seats in parliament to govern alone. A month later Jacinda Ardern, Leader of the Labour Party, became the 40th Prime Minister after the securing the backing of the country’s third largest party – the New Zealand first.
The country’s ANZ business sentiment remained negative for the third month in a row, while in December the index remained close to an 8-year low at -37.8 from -39.3 in November, on lingering uncertainty about policy direction under the new Labour-led government.
From the technical point of view, kiwi/dollar skyrocketed over the previous six weeks after the strong rebound on the 0.6815 support level. The pair has risen more than 7% since December 10 as the US dollar has come under broad pressure.
In addition, the price climbed to a fresh 4-month high of 0.7353 today, and if the consumer price index surpasses the consensus, then the expectation is a run until the 0.7370 resistance level. A break above the aforementioned obstacle could open the door towards the next immediate resistance of 0.7430 taken from the significant top on September 20.
A worse-than-expected figure could create a downward pressure for the pair and would retest the 0.7210 support level, which holds near the 200-simple moving average in the daily timeframe.
