The two items of most interest during the session here were the inflation data from China and the Reserve Bank of New Zealand monetary policy Review for July.

The RBNZ dropped a dovish bombshell. I explained it at the time (see bullets above):


From the RBNZ statement:

  • Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year

If that's the case why wouldn't we expect a rate cut soon? I think the RBNZ agree, judging by this:

  • The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

The TL;DR version of all this is 'if inflation goes down, rates go down'.


The interest rate and FX market agreed. NZD/USD dropped away after the statement and rates markets moved to price in nearer-term rate cuts. The Reserve Bank of New Zealand next meet in August (14th), markets are close to pricing in a 40% chance of a 25bp rate cut at that meeting. There is CPI data due from New Zealand next week - this will be a critical data point for the RBNZ in timing a rate cut.

From China we had June inflation data. Headline CPI came in at 0.2% y/y vs. the 0.4% expected and 0.3% in May. While it appears China is in danger of flirting with a deflationary CPI again the core rate offered some sign that’s not the case. Core came in at 0.6% y/y, unchanged from May. The PPI, of course, remained in deflation. The disappointment on the CPI has reignited calls for People’s Bank of China easing. The yuan weakened on the session. USD/CNY hit its highest (weakest for CNY) since November 14 last year.

Japanese wholesale inflation data showed an acceleration in June. The PPI (aka the corporate goods price index (CGPI)) rose 2.9% y/y. The yen-based import price index increased 9.5% y/y in June, from 7.1% in May, a sign of how much impact the weak JPY is inflating the price firms charge each other for imported raw material.

NZD/USD fell on the day, as did the yuan and yen.

RBNZ statement nzd wrap 10 July 2024 2