NZD Wallows After Consumer Price Index Shock
New Zealand’s Consumer Price Index has shown a rise of only 0.1% in 2015, down from 0.4% the previous year and -0.2% lower than forecast. Quarter-on-quarter prices fell -0.5%, -0.3% more than anticipated, while house prices have risen 5% over the last twelve months. The data shows that New Zealand experienced the slowest rate of inflation since 1999. With slow price growth likely to drag on wage growth, the likelihood that the Reserve Bank of New Zealand (RBNZ) will be forced to cut rates has shot up. According to the markets, the chances of a cut below the already historically low 2.50% rate has almost tripled to 70% from 26% just 20 days ago.
Mixed results from the ZEW economic survey have failed to strengthen the Euro, with the New Zealand Dollar rising despite a drop in dairy prices.
Euro to New Zealand Dollar (EUR/NZD) Exchange Rate Sinks on Mixed Economic Results
While the ZEW economic survey results have been mostly better-than-expected, they still show that the current global conditions are dragging on sentiment. The Economic Sentiment index dropped from 16.1 to 10.2, better than the expected fall to 7.9 but still concerning, especially considering the data shows that the number of positive economists didn’t rise but the number predicting things would get worse increased by 5.1 points.
While attitudes towards the current situation remained strong, rising unexpectedly from 55.0 to 59.7, assessment of the Eurozone dropped from 33.9 to 22.7. The index of economists predicting an improvement in the Eurozone dropped by -7.9 points, although more than half of them expected no change to the economy rather than a worsening of matters.
The number of experts predicting that there will be no change to European Central Bank (ECB) monetary policy rose by 7.0 points to 80.0, with the index of economists anticipating a rise increasing to just 4.4.
The Euro to New Zealand Dollar exchange rate is currently trading in the region of 1.6822.
New Zealand Dollar to Euro (NZD/EUR) Exchange Rate Bullish Despite Drop in Dairy
The GlobalDairyTrade Price Index has fallen again today, dropping -1.4% to US$2,405 per metric tonne. Prices have dropped both times the bi-weekly auction has happened in January after just two weeks of price rises in December ended a period of significant losses. Skim milk powder dropped -3.2% to US$1,835, while whole milk powder slipped -0.5% to US$2,188. Usually a drop in dairy, which is New Zealand’s main export, is the start of a downtrend for the New Zealand Dollar. However, the ‘Kiwi’ has been performing strongly today, advancing 0.4% against the Euro, 0.5% against the US Dollar and 1.3% against Pound Sterling (GBP).
The high-risk ‘Kiwi’ has also been strengthened today after market reaction to the latest round of Chinese data proved muted. Despite China posting the slowest rate of growth for 25 years, with GDP printing slightly below the forecast at 6.8%, the Shanghai Composite closed up 3.2%. The prospect of additional monetary stimulus in China, which would increase demand for New Zealand imports, has seen the S&P/NZX 50 index advance 0.4%.
The NZD/EUR exchange rate is currently trading between 0.5883 and 0.5991.
Euro to New Zealand Dollar (EUR/NZD) Exchange Rate Forecast: NZ CPI on Tap
New Zealand inflation data is due out during today’s Australasian session and is predicted to show a drop from 0.4% to 0.3% in Q4 of 2015. The US will release its Consumer Price Index tomorrow during the European session which could weaken the ‘Kiwi’ if it prints positively as anticipated. There is little relevant Eurozone data due out until Thursday, when the ECB will make a decision on interest decisions. No change is predicted.
The EUR/NZD exchange rate is currently trading between 1.6637 and 1.6985.