NZD/USD drops to near 0.6050 as annual inflation declines within the RBNZ target range

NZD/USD falls to a two-month low of 0.6039 following the inflation data release on Wednesday.
New Zealand's CPI rose 2.2% YoY in the September quarter, falling within the RBNZ target range of 1% to 3%.
Atlanta Fed President Raphael Bostic anticipates just one more interest rate cut of 25 basis points in 2024.

NZD/USD experiences a decline for the third consecutive day, trading around 0.6060 during Asian trading hours. The pair hit a two-month low of 0.6039 after the latest data showed that inflation in New Zealand has slowed to its lowest level in over three years.

In the September quarter, New Zealand's Consumer Price Index (CPI) rose 2.2% year-over-year, down from a 3.3% annual increase in the previous quarter. The CPI increased by 0.6% quarter-over-quarter in September, compared to a 0.4% rise in the June quarter, according to figures released by Stats NZ.

Nicola Growden, the consumer prices manager at Stats NZ, noted, “For the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s (RBNZ) target range of 1% to 3%. Prices are still increasing but at a slower rate than before.”

The US Dollar (USD) receives support, bolstered by strong jobs reports and inflation data that have reduced expectations for aggressive easing by the Federal Reserve (Fed). As a result, markets are now forecasting a total of 125 basis points in rate cuts over the next year.

According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no expectation of a larger 50-basis-point reduction.

On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic stated that he anticipates just one more interest rate cut of 25 basis points this year, as reflected in his projections during last month's US central bank meeting. "The median forecast was for 50 basis points beyond the 50 basis points already implemented in September, according to Reuters.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by Statistics New Zealand on a quarterly basis, measures changes in the price of goods and services bought by New Zealand households.The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference quarter to the same quarter a year earlier. A high reading is seen as bullish for the New Zealand Dollar (NZD), while a low reading is seen as bearish.

Why it matters to traders?

With the Reserve Bank of New Zealand's (RBNZ) inflation target being around the midpoint of 2%, Statistics New Zealand’s quarterly Consumer Price Index (CPI) publication is of high significance. The trend in consumer prices tends to influence RBNZ’s interest rates decision, which in turn, heavily impacts the NZD valuation. Acceleration in inflation could lead to faster tightening of the rates by the RBNZ and vice-versa. Actual figures beating forecasts render NZD bullish.

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