NZD/USD: Trading the New Zealand CPI January 2012

The New Zealand CPI (Consumer Price Index), which is released every quarter, measures the change in the price of goods and services charged to consumers. The index is often a market-mover, and  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 21:45 GMT.

Indicator Background

The CPI, also known as the inflation rate, is important to currency traders, since  the central bank  carefully monitors the CPI, and will adjust interest rates when necessary, in order to keep inflation  at acceptable levels.  Higher interest rates make the New Zealand dollar more attractive to investors, while a cut in interest rates will usually push the currency downwards.

Unlike many other countries, New Zealand releases CPI figures quarterly rather than monthly, which adds volatility to the index. The previous  reading  came in at 0.4%, down from 1% in July.  The forecast for  January stands at 0.4%, so the market does not foresee any change in inflation  during the last quarter of 2011.

Sentiments and levels

Talk of further QE in the US is bullish for the kiwi.  On the other hand, the slowdown in economic growth in China and the worsening crisis in the eurozone is weighing on the currency. As well, analysts are predicting that the central bank will not adjust interest rate levels when it releases its Rate Statement next week. So, the overall sentiment is  neutral on NZD/USD towards this release.

Technical levels, from top to bottom: 0.8110, 0.8060, 0.80, 0.79, 0.7840, and 0.7743.

5 Scenarios

1. Within expectations: 0.1% to 0.7%: 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: 0.8% to 1.1%: An inflation reading  that is higher than expected  could  push the pair  above one  resistance level.
3. Well above expectations: Above 1.1%: An unexpectedly sharp rise in inflation would likely trigger higher interest rates, pushing NZD/USD upwards, and possibly breaking two or more lines of resistance.
4. Below expectations: -0.3% to 0.0%: A reading of zero or lower could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below -0.3%:  Such a reading  would push NZD/USD downwards,  and the  pair could break two  support levels or more.

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