New Zealand Dollar Rally May Be Hindered (or Helped) By Upcoming Inflation Data

The New Zealand dollar has been on a tear today, surging across the majors but especially against the ultra-weak Japanese yen and US dollar as increased risk appetite spurs demand for carry trades. However, the currency will face significant event risk at 18:45 ET as New Zealand’s consumer price index is forecasted to have risen 0.5 percent during Q2, which could bring the annual rate down to a nearly two-year low of 1.8 percent from 3.0 percent. As it stands, Credit Suisse overnight index swaps are pricing in a slight 25 percent chance of a 25 basis point rate cut to 2.25 percent, but if the latest inflation results reflect a sharp drop in price growth, the odds could shift in favor of looser monetary policy and the New Zealand dollar could fall. On the other hand, if inflation pressures prove to be stronger than anticipated, the currency could rally.