-Michael Gordon, Westpac's senior economist
The New Zealand currency lost more than a half per cent against the U.S. Dollar on Wednesday as inflation report came weaker than expected. The NZD/USD pair declined 0.53% to 0.8598, moving closer to a strong support at 0.8578.
A report from the Statistics New Zealand was the first set of disappointing data for a long time. The agency said the cost of living in New Zealand rose 1.5% in the first quarter, slowing down from 1.6% three months earlier and missing analysts' expectations for a 1.7% growth. At the same time, dairy prices declined for a fifth straight auction, extending their losses to 21.9%. Around a half of the quarterly gain came from the housing market, where household utility costs climbed 3.3%. The main downside pressure, however, came from typically-imported goods like computers or audio-visual equipment, that suffered from the high exchange rate. The kiwi soared more than 6% against its U.S. counterpart amid RBNZ's tightening of its monetary policy.
With inflation hovering safely within the official target band of 1-3%, it is unlikely that the central bank will veer away from its pledge to continue raising interest rates. Therefore, it is widely expected that the RBNZ will raise the OCR by additional 25 basis points during its meeting next week.
© Dukascopy Bank SA