NZD/USD: Trading the New Zealand CPI

The New Zealand CPI (Consumer Price Index), which is released every quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which  is higher than the market forecast is bullish for the New Zealand dollar.

Here are all the details, and 5 possible outcomes for NZD/USD.

Published on Wednesday at 22:45 GMT.

Indicator Background

Analysts consider CPI  one of the most important economic indicators, and the release of the New Zealand CPI can affect the direction of NZD/USD. If inflation is considered too high or too low, the central bank may intervene by adjusting interest rates, which will also  effect the local currency.

The CPI reading  in January  dropped sharply, posting a reading of -0.3%.  Not only  was this the first negative reading  since Q1 of 2010, the figure also shocked the markets, which had forecast  an increase of 0.4%.  which was close to the forecast of 1%.    The forecast for Q1  stands at 0.6%. Will the index again surprise the markets?

Sentiments and levels

The slower growth in China, confirmed by recent economic indicators,    continues to weigh on the kiwi. In addition, the global downturn, and weaker figures coming out of the US, such as employment numbers, are working in favor of the greenback, as investors look to park their funds in safe haven currencies. Thus, the overall sentiment is bearish on NZD/USD towards this release.

Technical levels, from top to bottom: 0.84, 0.8290, 0.8264, 0.8190, 0.8124 and 0.81.

5 Scenarios

1. Within expectations: 0.3% to 0.9%. In this scenario, NZD/USD could show some slight fluctuation, but it is likely to remain within range,  without breaking any levels.
2. Above expectations: 1.0% to 1.3%: A reading  above the market forecast  could  push the pair  above one  resistance line.
3. Well above expectations: Above 1.3%: An unexpectedly sharp rise in inflation could push NZD/USD upwards,  with two or more lines of resistance at risk.
4. Below expectations: -0.1% to 0.2%: A lower than expected reading could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below -0.1%: Another reading in negative territory  could  result in the  pair break two  or more support levels.

For more on NZD/USD, see the  New Zealand dollar forecast.