NZ Dollar Slumps on Slowing Inflation

These are the best levels for pound sterling holders to buy the New Zealand dollar in 8 days as New Zealand inflation falls.

Soft sentiment has ensured the Chinese data that previously boosted both the NZ and Australian dollars is swiftly forgotten.

But, buyers are urged to be quick as we are seeing fresh selling pressure in the GBP following the release of some lower-than-expected UK retail figures.

The dip comes days after the outlook for the Australian dollar and NZ dollar improved on news that Chinese GDP printed at 7.3% which went some way in dispelling fears that the Australia and New Zealand's most important foreign market remains in robust shape.

For China this is however the slowest quarterly reading since the depths of the credit crisis in 2009; it is nevertheless better than the 7.2% expected by the market and the Aussie and Kiwi dollar's will therefore find longer-term support.

Latest AUD and NZD Rates following NZ inflation figures:

• The pound to Australian dollar: 0.03 pct lower on a day-to-day basis, GBP/AUD is at 1.8279.
• The Australian to US dollar: 0.07 pct lower, AUD/USD is 0.11 pct lower at 0.8772.

• The pound to New Zealand dollar: 1.04 pct higher, GBP/NZD is at 2.0457.
• The New Zealand dollar to US dollar: 0.22 pct lower, NZD/USD us at 0.7943.

Kiwi Inflation Data Drags Down Antipodean Complex

Statistics New Zealand reported earlier that consumer price inflation rose 0.3% in the third quarter, confounding expectations for an increase of 0.5%, after a 0.3% advance in the three months to June.

The data fuelled speculation that the Reserve Bank of New Zealand could delay any potential rate hikes.

The NZ figures mirror a downtick in inflation in Australia. Yesterday’s CPI report in Australia, showed headline CPI inflation was relatively subdued in Q3 at 0.5% q/q, with the removal of the carbon tax weighing on the outcome.

The annual rate eased sharply to 2.3%, with the high inflation outcome in Q3 2013 dropping out of the calculation. Underlying inflation eased to 0.5% q/q, for annual growth of 2.55%, down slightly from an average 2.7% in the previous three quarters.

The pressure to raise rates in both countries has eased yet further - until investors see the potential for higher interest rates in either countries the incoming capital needed to boost the AUD and NZD will be scarce.

Why Did the Aus and NZ Dollar Move Higher Earlier in the Week

Today's negative performance comes after a solid start to the week for AUD and NZD.

Chinese GDP data beat expectations. However, further gains to the AUD and NZD came as Chinese Industrial Production increased to 8.0% from 7.8% forecast indicating that need for for fiscal stimulus may be diminished.

The better-than-expected IP data also suggests that export demand remains robust and is yet another sign that global economy continues to expand at a positive pace.

Boris Schlossberg at BK Asset Management comments on the impact on the currency market:

"The news helped to lift both Aussie and kiwi with the former clearing the 8800 level while the later broke above the 7900 figure. (Against the US dollar).

"Both pairs ran into sell orders above those levels but remained well bid into European dealing.

"Although both antipodeans remain near the bottom of their ranges they appear to have traced out a bottom over the past several weeks as expectations of any Fed tightening have deceased while investor concerns over growth in Asia have abated.

"It's unlikely to either one of the pairs will stage another significant rally given muted growth expectations, but both pairs should find support at current levels as their yield provides great value for carry traders."

Commenting on the New Zealand dollar's outlook, Ipek Ozkardeskaya at Swissquote Research says:

"NZD/USD cleared 0.80 offers for the first time over a month and rallied to 0.8034. Trend and momentum indicators are comfortably bullish. We see room for further upside correction.

"Resistance is seen at 0.8052 (former year-low) then 0.8134/40 (50-dma / Fib 38.2% on Jul-Oct sell-off)."

RBA Keep Expectations Tempered

There was also the impact of Reserve Bank of Australia minutes to deal with for the Aus dollar today.

Ozkardeskaya notes:

"AUD/USD traded ranged, the enthusiasm on Chinese data was partially tempered by RBA minutes, re-insisting on moderate improvement in labor market, over-valued AUD and the importance of rate stability.

"On falling commodity prices, the RBA said most Australian iron ore mines remain profitable despite low prices, while the softer Chinese property markets continue weighing on steel demand. The AUD/USD rallies find sellers; offers are seen pre-0.8900."