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The  New Zealand  CPI (Consumer Price Index), which is released each quarter, is a key  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 Monday at 10:45 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, as it is the primary tool  used to measure consumer prices  and inflation.  Thus,  a CPI figure which is higher or lower  than the market  forecast can  affect the direction of NZD/USD.

The CPI reading  in Q1 of 2011  rose 0.5%, which was very close to the market forecast. The estimate for CPI in Q2 is unchanged. Will the index meet or beat this prediction?

Sentiments and levels

Although New Zealand’s economy remains strong, the European debt crisis and  recent Chinese weakness  are weighing on the kiwi.  Also the US economic situation  is undermining  the  New Zealand currency – the US job market is too weak to encourage risk taking, such as buying New Zealand dollars. This is a positive situation for the greenback, and bad for the ultimate risk asset – the kiwi. Thus, the overall sentiment  has turned from neutral to  bearish on NZD/USD towards this release.

Technical levels, from top to bottom: 0.8185, 0.8075, 0.80, 0.79, 0.7840, and 0.7723.

5 Scenarios

  1. Within expectations: 0.2% to 0.8%. 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: 0.9% to 1.2%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 1.2%: An unexpectedly sharp rise in inflation could push NZD/USD upwards, with two or more lines of resistance at risk.
  4. Below expectations: -0.2% to 0.1%: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below -0.2%: A  very weak reading  could result in the pair breaking two or more support levels.

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