"It looks like a justified reaction based on the headline CPI reading coming in a little bit softer than expected"
- Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd.
The New Zealand Dollar weakened the most in seven weeks after consumer price index rose less than expected and a gauge of dairy prices decline to the lowest level since 2012. The local currency slumped against all of its major counterparts on speculation the Reserve Bank of New Zealand might postpone hiking interest rates. The kiwi lost as much as 0.7% to 87.06 U.S. cents, the biggest drop since May 28. New Zealand inflation remained surprisingly contained, with consumer prices rising 1.6% in the three months through June compared to the same period last year. Analysts, however, expected a 1.8% increase. Prices of imported goods were the main downward contributor to the annual change of inflation. On a quarterly basis, CPI rose 0.3% unchanged from the previous three-month period.
Nevertheless, the RBNZ would be pleasantly surprised by CPI's result, as low inflation and strong growth are what central bankers pursue. The nation's central bank's main concern is keeping domestic inflation pressures controlled, as accelerating inflation reflects the New Zealand economy growing beyond its potential. In response to the booming economy, the RBNZ has already increased its cash rate by 75 basis points this year, the first central bank in the developed world to do so, and it is expected the central bank will continue lifting rates this year.
© Dukascopy Bank SA