NZD/USD: Trading the New Zealand PPI

New Zealand release inflation data only once per quarter, making the publication a big event that impacts rate decisions. The upcoming release holds low expectations, that might turn into a very strong moves. Here are the details about this event, and 5 possible scenarios for NZD/USD reactions.

Published Tuesday, 22:45 GMT.

Indicator background

Inflation numbers are critical to rate decisions. The RBNZ recently cut the interest rate sharply, by 0.5%, following the terrible earthquake in Christchurch. This sharp move was a temporary measure. Rising prices can send the rates, traditionally high in New Zealand, back to higher levels. This is especially true as recent job figures in New Zealand were positive,

Producer prices are released before consumer prices, making the release a very important indicator. Both figures are published only once per quarter, making the importance of the publication much higher.

There are two PPI figures, PPI Input and PPI Output. PPI Input is of higher importance, as this measures the prices that manufacturers actually pay.

PPI Input saw sharp rises in Q1 and Q2 of 2010, but Q3 and Q4 already saw more moderate moves, with a rise of 0.9% in Q4. This release is likely to show another slowdown in price rises, only 0.6%. These low expectations can yield a sharp move if the result is different. Q1 saw big rises in commodity prices. These rises help New Zealand’s exports of food, but also make production more expensive.

Sentiment and levels

Since the beginning of May, the tables have turned in favor of the US dollar in global markets. The kiwi has held up relatively well, but the sentiment is slightly bearish on NZD/USD.

Technical levels from top to bottom: 0.8215, 0.81, 0.7975, 0.7875, 0.7825, 0.7746, 0.7655, 0.7523, 0.74 and 0.7350.

5 Scenarios

1. Within expectations: +0.5% to +0.8%: NZD/USD slides, probably within range.
2. Above expectations: +0.9% (last quarter) to 1.3% – The kiwi rises and has a good chance of breaking one resistance level.
3. Well above expectations: +1.4% (Q3 peak rise) and higher: NZD/USD is likely to break one resistance level and challenge another one.
4. Below expectations: +0.1% to +0.4%: NZD/USD slides with an excellent chance of losing support.
5. Well below expectations: 0% or lower: In this unlikely case, two or more levels of support are endangered, as no rate hikes will be possible.

For more about the New Zealand dollar, see the NZD USD Forecast.