Summary:

• NZ official inflation data shows CPI at 1.9% yoy in September but RBNZ’s measures remain lackluster
• First Party’s leader Peter hasn’t made yet a decision who to back after the elections
• Milk auction will take place this afternoon

The NZ dollar got a little boost yesterday evening when the official inflation data was revealed. According to the report headline CPI accelerated from 1.7% yoy to 1.9% yoy while the consensus had expected a 1.8% yoy increase. Moreover, the release was yet more impressive when we look at a monthly basis which showed a rise from 0% to 0.5%, the data was for the third quarter.

Inflation in the NZ economy seems to back on an appropriate track. Source: Macrobond, XTB Research

As you can see on the chart above both headline and core inflation sped up in the latest quarter being just a shy of the RBNZ’s inflation target. Albeit, the RBNZ publishes its own inflation numbers and they illustrated mediocre pace of price dynamics at 1.4% yoy, nonetheless it has to be said that these prints tended to be lower in the past as well. On the flip side, one needs to mention that another higher levels could be getting harder to achieve due to an adverse base effect. However, retail sales data as well as wage growth look more encouragingly compared to the Australian economy which could suggest the NZD might outperform its major peer in the nearest future.

Nevertheless, politics seems to be a large drag on the NZ currency as we haven’t gotten yet a final decision from First Party’s leader Winston Peters who his party is going to back after the NZ elections in order to forge a new government. Therefore, political uncertainties could swirl in the upcoming days, however a long-standing impact could be rather insignificant for the NZD. He also affirmed earlier today that the board of his party and caucus had spent a couple of days on very comprehensive discussions and preparations. He added that even though a lot of work is already complete at this point, yet more work needs to be done before a final verdict is made.

The NZDUSD gained a bit following higher inflation but gains were erased quite quickly. The price has failed to break a resistance placed at 0.7200 so far, hence a pullback towards 0.7060 could be on the cards. Source: xStation5

Let us also recall that another milk auction is going to take place today, hence some volatility could occurred in the aftermath. The last auction saw a decline of whole milk powder by 2.7%. Results of today’s event should be know between 2:00 and 3:00 pm BST.