New Zealand’s consumer price index (CPI) rose by 0.1% in the Q4 2013. This was higher than a flat read that was expected. Also year on year, price rises exceeded expectations with 1.6% instead of 1.5%.
NZD/USD reacted with a big jump from around 0.8250 to resistance at 0.8335. On the way, it escaped uptrend support. Why did the kiwi enjoy such a rally after a not-so-big surprise? Here are some explanations.
First, let’s look at the hourly chart, which shows the uptrend support line:
The main reason for the rise is the sensitivity of the market to this figure, given the outspoken intention of the RBNZ to raise the rates in 2014. Graeme Wheeler and his colleagues already stated this very clearly. With inflation rising above expectations, a rate hike could come much sooner, perhaps already in the first quarter.
In addition, the fourth quarter in New Zealand is traditionally weak in terms of price rises, making the unexpected rise more important. The year over year rise is also the strongest since the first quarter of 2012. In many developed countries, inflation is heading lower, not higher. New Zealand stands out with rising inflation, a non-zero interest rate and intentions to hike the rates.
For more on the kiwi, see the NZDUSD forecast. Here is how uptrend support looks on the daily chart:
In Australia, the interest rate is the same as in New Zealand: 2.5%, but the central bank there is more likely to cut the rate rather than raise it. AUD/NZD is gradually grinding towards parity.