ForexLive Asia-Pacific FX news wrap: RBNZ leans more dovish, NZD drops

July 10, 2024 7:41 am

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.

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