Q4 CPI for New Zealand came in lower than expected, with Q/Q number coming in at 0.2% vs 0.3% expected, and a dip from previous quarter’s 0.4%. Y/Y figure wasn’t any much better, coming in at 0.7% vs 0.8% and a similar 20 basis point dip from last quarter’s 0.9%. The lower than expected inflation rate would naturally imply that RBNZ should have wider scope to implement its long awaited wait cut which Governor Wheeler has been wishing to carry out long ago. This drove NZD/USD prices lower initially, but prices subsequently rallied higher, which flies in the face of the natural conclusion that RBNZ should be more likely to embark on lower rates moving forward.
The reason for this strange behavior can be understood if we look beyond the headline figure. Despite the lower than expected CPI figure, Housing sector continue to gain strongly. New houses rose 1.7%, while rentals are up by 0.4%. Dwelling insurance also rose significantly by 9.9%. The reason headline CPI did not reach expectations were due to price decrease of less important components such as Fruit Prices which fell 4.5%. New Car prices is lower by 1.0% while second-hand car prices is lower by 1.9%. Petrol prices also fell by 2.5%, off-setting the gains in the housing sector, which is the more important item considering that RBNZ is fearful that the housing market will spiral out of control due to bubbling. Therefore, the latest CPI numbers actually discourage RBNZ from cutting rates, which is bullish for NZD/USD, and explains the subsequent rally from 0.78 to current levels.
From a technical perspective, price has managed to clear the 0.782 resistance which happens to be the confluence with the Senkou Span B (Kumo Top), together with a bullish Kumo twist, current price looks set to affirm its position within the 0.782 – 0.788 consolidation zone that was in play on 9-10th July and 12th July. As stochastic readings are currently Overbought, it is possible that short-term pullbacks may occur when 0.788 is reached, but that should not invalidate current rally from 0.773 unless 0.782 is broken once more.
Weekly Chart is bullish with prices currently trading within the multi-year Support Channel. As long as price trades within the rising channel, immediate bearish pressure will be relieved and Channel Top will be a viable bullish target as part of a larger correction move. Stochastic is agreeable with this outlook as readings are currently trying to climb above 20.0, which would initiate a bullish cycle signal.
Fundamentally, with or without CPI, RBNZ has mentioned that they will not be engaging the market directly when NZD/USD is moving higher, and will only sell NZD when the trend is down. Given such declarations, it is one less problems bulls need to worry about when pushing towards Channel Top. But the reverse would be true as well – close below the Channel floor and we could see quick acceleration lower both from technical bears and RBNZ seeking to extend bearish endeavors lower.