The New Zealand Dollar Takes Its Winning Streak Into The Inflation Report

Stats NZ's third-quarter Consumer Price Index (CPI) comes at 21:45 GMT on Wednesday, with NZD/USD just under its 50-day average and the Reserve Bank of New Zealand (RBNZ) deciding on October 28. The pair trades just above 0.5700 after five straight daily gains, its highest since September 23. Swaps price about an 80% chance that the RBNZ raises its Official Cash Rate (OCR) to 3.00% from 2.75%, so the release can make the hike a certainty or put it back in doubt.

Traders price at 80% a hike Chief Economist Conway calls wide open

The New Zealand Dollar was among the stronger majors on Wednesday, with the US Dollar softer against most of them. New Zealand's card spending rose 6.9% on the year in September after 3.5% in August, and faster spending at home is the sort of figure that keeps a hike on the table. The RBNZ raised its rate in July and again on September 2, and a third hike to 3.00% would take the OCR to within a point of the Fed's 3.75%-4.00% range, measured to its midpoint.

RBNZ Chief Economist Conway said the path for rates is most likely up but that the October decision is wide open. In the record of the September 2 hike to 2.75%, he was one of two committee members who saw the risks to inflation as balanced, while the other four saw them tilted higher. One of the committee's two balanced voices now says rates are most likely going up.

Chief Economist Conway also named Crude Oil prices and the exchange rate among the upside risks to inflation, which ties the decision straight back to NZD/USD. A weaker Kiwi raises the price of everything New Zealand buys abroad, so the five-session rally has trimmed one of the upside risks Chief Economist Conway named.

The last quarter's inflation beat the RBNZ's projection by two tenths

Third-quarter CPI is forecast to rise 0.8% on the quarter after 1.5%, with the annual rate easing to 3.8% from 4.1%. The RBNZ's projections are 0.8% and 3.9%, and its target band is 1%-3%, so even a release on forecast leaves annual inflation 0.8 points above the top of the band. The RBNZ expects inflation back inside the band by mid-2027 and at the 2% midpoint later that year.

Analysts expect a hike on October 28 unless the release falls well short of forecast. It's possible the third quarter comes in under the RBNZ's projection, though the second quarter came in at 4.1% against a projected 3.9%. For NZD/USD, an annual figure at or above 3.9% would leave the hike close to fully priced, and the 50-day average just overhead would be the first test of that. Some analysts already see the Kiwi as cheap against its short-term fair value.

The Fed is priced at about 90% to hike by December

Thursday's US jobless claims, at 12:30 GMT, are expected at 200K against the prior 199K. S&P Global's preliminary US Purchasing Managers Index (PMI) readings come out on Friday at 13:45 GMT, with manufacturing expected at 55.6 after 55.9 and services at 57.9 after 58.8.

Fed futures price a hold on October 28 and about a 90% chance of a hike by December, which matters to the Kiwi because the two banks move the same gap from opposite ends. A quarter-point RBNZ hike in October narrows it by a quarter-point, and a quarter-point Fed hike in December puts it back where it started. US data that firms the December case shrinks what an October RBNZ hike is worth to NZD/USD.

The New Zealand Dollar's levels under its 50-day average

Resistance: NZD/USD has been under its 50-day Exponential Moving Average (EMA) since early September, and Wednesday's high stopped just short of it, a little above 0.5700. 0.5750 is where the September 22 bounce ended, and the September 18 high sits just under 0.5800.

Support: Wednesday's low just above 0.5650 held above Tuesday's. 0.5600 is the level the five-session run started from on October 15.

Bias: Long while 0.5650 holds on a closing basis, aiming at 0.5750 and then 0.5800. The daily Stochastic Relative Strength Index (Stoch RSI) is up to about 78 and heading for overbought, so a CPI miss would land on a stretched run. A daily close under 0.5600 ends the long.

NZD/USD daily chart