Unlike most countries, New Zealand publishes its inflation data only once per quarter. This means there are a lot more expectations ahead of the release.
Many analysts are saying this is a key point that will set the trend for monetary policy for the next three months. And, by extension, this would affect how the NZD will trade for that period.
The current outlook suggests that the RBNZ is less likely than before to continue easing, and inflation is seen to finally have turned the corner. Until recently, optimism of Chinese growth following signing the Phase 1 trade deal with the US helped the outlook for New Zealand.
However, now with the outbreak of the coronavirus, there are increasing concerns that the Kiwis could be affected by a drop in travel, and slowing consumption in the Asian giant.
What We Are Looking For
Expectations are for the quarterly CPI change rate to slow this time around to just 0.1% compared to 0.7% in the prior quarter. But, and this appears to be the more relevant fact, it doesn’t stop the annualized inflation rate from moving up to 2.2% compared to 1.5% prior.
If expectations are met, it would put the inflation rate over the RBNZ’s target. It would, therefore, justify not cutting rates at least for the next three months. It would also be the highest rate since early 2017, long before the latest easing cycle.
The Partners Matter, Too
Another more recent factor that contributes to reducing expectations of action on the part of the central bank is the better than expected jobs data from Australia yesterday.
Analysts adjusted expectations for when the RBA would cut rates, pushing the balance of expectations firmly into the second quarter.
In the shorter term, though, the NZD isn’t likely to get much of an upside from global conditions. The virus outbreak has put markets off taking risks and delving into commodity currencies.
The next update from the WHO on the situation isn’t until Tuesday. And China starts its Lunar New Year holiday today, which means less guidance from New Zealand’s largest customer.
It should be noted that while the consensus is for the inflation rate to come in near, if not at the RBNZ’s target, there is still quite a range among views.
New Zealand-based economists, chief among those from Westpac, are more inclined towards sluggishness in the inflation rate. A result below 1,8% annual, for example, might be seen as insufficient by many traders. And it could lead to increased speculation that the RBNZ could take action soon.
On the other hand, the top of the range is as high as 2.3%, mostly from foreign analysts. However, as an object of carry trading and speculation, a lot of NZD moves are related to relative strength in other currencies.
So, a result above 2.0% might be more in line with what the market is expecting. As a result, it might not offer as much upside.