New Zealand inflation stronger than expected – NZD/USD escapes
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New Zealand inflation stronger than expected – NZD/USD escapes

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:

NZDUSD higher after strong inflation January 21 2014 technical one hour chart

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:

NZD USD daily chart January 21 higher after inflation numbers escaping uptrend support

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.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.