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New Zealand Dollar Surges on Strong CPI, Aussie and Loonie Lag Behind

New Zealand Dollar surges broadly again today as decade high CPI reading prompted more speculations on RBNZ rate hikes. That somewhat helps stabilizes the selloff in Aussie and Loonie. On the other hand, Yen appears to be softening slightly as rally lost steam. Dollar, Euro and Sterling are mixed. As for the week, Kiwi is overwhelmingly the strongest one, but Loonie and Aussie are the worst performers so far.

Technically, focus will stays on Dollar today, especially with retail sales data featured. USD/CAD’s break of 1.2589 resistance suggests resumption of rally from 1.2005. But no corresponding movement is seen in other Dollar pairs yet. Based on this week’s development elsewhere, we’d pay special attention to AUD/USD’s reaction to 0.7413 key support level, which it’s still defending. Sustained break there would indicate deeper medium term correction is underway, probably back to around 0.7.

In Asia, Nikkei closed down -0.98%. Hong Kong HSI is up 0.31%. China Shanghai SSE is down -0.60%. Singapore Strait Times is up 0.41%. Japan 10-year JGB yield is up 0.0083 at 0.023. Overnight, DOW rose 0.15%. S&P 500 dropped -0.33%. NASDAQ dropped -0.70%. 10-year yield dropped -0.059 to 1.297, back below 1.3 handle.

BoJ stands pat, upgrades inflation forecasts

BoJ kept monetary policy unchanged today. Under yield curve control framework, short term interest rate is held at -0.1%. 10-year JGB yield target is kept at around 0%, without upper limit on JGB purchases. The decision was made by 8-1 vote, with Goushi Kataoka dissented again, pushing for further strengthening of monetary easy, by lowering short and long term interest rates. BoJ will will also continue to buy ETFs and J-REITS with upper limit of JPY 12T and JPY 180B respectively.

In the new economic forecasts, BoJ:

  • Downgraded fiscal 2021 GDP growth to 3.8% (from April’s 4.0%)
  • Upgraded fiscal 2022 GDP growth to 2.7% (from 2.4%).
  • Kept fiscal 2023 GDP growth at 1.3% (unchanged).
  • Upgraded fiscal 2021 CPI core to 0.6% (from 0.1%).
  • Upgraded fiscal 2022 CPI core to 0.9% (from 0.8%).
  • Kept fiscal 2023 CPI core at 1.0% (unchanged).

New Zealand CPI rose 1.3% qoq, 3.3% yoy in Q2, RBNZ hike speculation intensifies

New Zealand CPI rose 1.3% qoq in Q2, well above expectation of 0.7% qoq. For the 12-month. CPI accelerated to 3.3% yoy, up from 1.5% yoy, well above expectation of 2.8% yoy. The annual rate is the highest in nearly a decade. Also, the figures were well above RBNZ’s forecast of 0.6% qoq 2.6% yoy inflation.

Speculations of an early RBNZ hike intensified further after the release. Westpac now expects a hike in OCR by 0.25% in August, with another hike at both October and November meeting. The developments pushed AUD/NZD through 1.0597 support today to resume the near term fall from 1.0944. Deeper decline could be seen towards lower part of the medium term range at 1.0415.