Credit Agricole spent some time looking at the NZ inflation numbers from yesterday in an overnight FX note. In brief;
NZ's headline inflation data surprised the market and the RBNZ to the upside
We note … however …
- the acceleration in inflation while driven partly by the depreciation in the exchange rate was also largely driven by higher oil prices as well as an increase in a regional fuel tax of 10 cents per litre in Auckland
- the RBNZ's sectoral factor model of inflation, … remained at 1.7% YoY in Q3 after stripping out some of these temporary boosts to inflation
- inflation … below the centre of the RBNZ's 1-3% inflation targeting band
RBNZ has room to keep rates on hold or even cut rates
Importantly, the market remains only modestly priced for an RBNZ rate cut in 2019 and we are yet to see the slowdown in growth heralded by the collapse in business confidence
So we continue to expect the NZD to be driven mainly by offshore events and forecast higher UST yields and the US-China trade war to weigh on the NZD.
CA with a trade reco … short NZDUSD at $0.6575
- stop at $0.6740
- target of $0.6200
