Kiwi sharpens decline to five-week trough as inflation slows down

The New Zealand dollar fell in European trade against dollar for the second session, plumbing five-week lows after data showed New Zealand inflation slowed down in the first quarter of the year. 

The dip in inflation and housing prices reduces pressure on the Reserve Bank of New Zealand and hurts chances of another rate hike this year, and boosts the odds of actual rate cuts later this year.

The kiwi last fell 0.8% against US counterpart to 0.6149, the lowest since March 16, with a session-high at 0.6206. 

The New Zealand dollar fell 0.15% yesterday against US counterpart, the third loss in four days as housing prices tumbled. 

Inflation

Government data showed New Zealand's consumer prices rose 6.7% y/y in the first quarter of the year, below estimates of 7.1%, and down from 7.2% in the previous quarter. 

Such data boosts the odds of a turn in monetary policy this year towards easing rather aggressive tightening. 

New Zealand Rates

The RBNZ already raised interest rates 11 times since October 2021 to 5.25%, the highest  since 2008.

And at the April 5 meeting, the RBNZ raised rates by 50 basis points for a second time in a row, passing estimates of a 0.25% hike. 

The RBNZ warned that higher short-term inflation weighs on inflation outlook and threatens price instability, however markets now expect the RBNZ to reverse policies as consumer prices slow down. 

Estimates

JPMorgan analysts said the downside aspects of the kiwi are due to the housing sector decline, which is rather crucial to the forex markets, in turn weighing considerably on the New Zealand dollar.