MUFG Research discusses NZD outlook in light of this week's stronger than expected NZ CPI print.
"The domestic news flow from New Zealand continues to surprise to the upside. It was reported overnight that headline inflation accelerated more than expected to an annual rate of 1.9% in Q4. Higher than the RBNZ’s forecast made back in November of 1.6%. It has prompted the New Zealand rate market to further pare back RBNZ rate cut expectations. According to Bloomberg, there is now only around a 1 in 4 chance of another rate cut this year," MUFG notes.
"The paring back of RBNZ rate cut expectations has already helped the kiwi to stage a strong rebound towards the end of last year although it has now run into stronger resistance provided by the highs from last July at close to the 0.6800-level which were put in place prior to the RBNZ’s surprise 0.50 point rate cut delivered last August. It should continue to put a cap on further kiwi upside in the near-term," MUFG adds.