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NZD under pressure from soft inflation data

New Zealand’s price producer index (PPI) for Q2 came in weaker than expected, prompting the Kiwi dollar to slide against some of its major counterparts.

NZD/AUD notes
Source: Bloomberg

This sets the tone of what we might expect at 11am, when New Zealand releases its two-year outlook for inflation that could prompt another move in the market.

Output PPI fell to -0.5%, from 0.9% in Q1, while PPI for input dropped to -1%, from 1% over the same period. That prompted a jump of over 0.4% in pairs like AUD/NZD, and a sell-off in NZD/USD and NZD/CHF.

NZD/USD Chart
Click to enlarge

 

Last month, the Reserve Bank of New Zealand hiked interest rates for the  fourth straight time to 3.5%. However, it also signalled a pause in further hikes over concerns that the currency level was too high and not in line with weakening commodity prices.

The inflation outlook will give a gauge of the percentage that business managers expect the price of goods and services to change annually over the next two years.

The previous quarter’s edition released in May gave a print of 2.4%, higher than the 2.3% expected in February’s survey. With the calendar light on macroeconomic data and a lack of market catalysts, investors could be looking to this for some leads.

A softer outlook could prompt further pressure on NZD and test its support level of 0.84256 on NZD/USD.

 

 

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