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 signifcant 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.
During Q4 2008, quarter-over-quarter prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on July 29. 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.
Al Bawaba
