Global Themes

NZD

Inflation outlook pivotal for Kiwi today

RBNZ's 2 year inflation expectation survey released at 3pm today.

The New Zealand Dollar has been treading water to start the week, awaiting today's inflation expectation survey and Thursday's monetary policy statement from the Reserve Bank. Today the attention will be on the outcome of a survey conducted by the RBNZ on how 100 businesses see pricing pressures in 2 years Why is this so important? Market participants drive behaviour, which in turn drives prices. Put simply if you thought the price of an asset would be stagnant or fall you would most likely wait to buy, whereas if pricing pressures were pushing up you would be buying now. Perception is often reality when it comes to inflation, as behaviour becomes self-fulfilling.

Today the risks are more skewed towards a downwards revision on last quarter's 2.11% forecast, given the latest actual inflation print undershot predictions. A significant downward revision has potential to see the Kiwi retest 6 month lows.

Fed's Bostic indicates rate hike path on track

Some overshoot on inflation may occur.

Overnight Atlantic Fed President Raphael Bostic gave markets a reasonably clear cue that current data has the Fed on track for two more rate hikes this year. With the US unemployment rate dropping to a lowly 3.9% it is becoming more likely that the scarcity of labour will drive up wage inflation, but Bostic said he is comfortable with some overshoot given they "can't stop trends on a dime".

NZD/JPY continued its slide towards 76 with investors concerned about the impact further US rate hikes may have, opting for the safe haven currency. Conversely NZD/EUR edged up as the Euro gives up ground against the Greenback.

Aussie retail sales, Federal budget due today

Meek forecast of a 0.2% growth in retail numbers for April.

Outside of the RBNZ's 2 year inflation expectation survey due at 3pm we also have Aussie retail sales at 1:30pm today and the Australian federal budget tonight .

With low expectations for retail sales and an infrastructure laden budget promised across the ditch, AUD exporters may finally get a peek below the 0.93 level.

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