Inflation expectations in New Zealand rises the most since 2014
Strong uptick in the quarterly New Zealand inflation expectations alongside the increase in headline consumer prices in the last quarter of 2016, which saw inflation return to the RBNZ’s inflation target mid-point of 2%, reinforces expectations that the RBNZ will be tightening policy soon.
The RBNZ's survey of inflation expectations showed a strong increase in anticipated inflation of 1.92% in the next two years, accelerating from the previous survey reading of 1.7%
The increase in inflation expectations puts it closer to the upper and of the RBNZ's target rate of 1% - 2%. There was also an increase in the short term inflation expectations which measure for only one year, jumped from 1.29% to 1.56%. The inflation expectations report comes a day ahead of the RBNZ's monetary policy meeting where interest rates are expected to be held steady at least for the current quarter of 2017.
Inflation expectations are a major source of influence for the RBNZ's monetary policy decisions as it views the data to assess the impact on how businesses will adjust to wages and prices. Over the past few years, inflation in New Zealand remained weak pushing inflation expectations lower as a result. This eventually led the central bank to cut rates.
However today's increase in inflation expectations is a welcome change that could spur the hawks on the monetary policy committee to argue for tightening rates.
How to trade binary?
The inflation expectations data has pushed the NZDUSD to a fresh three-year high at $0.7375 earlier today. The Kiwi has been on a strong bullish rally for the past six consecutive weeks and is now attempting to break out from the resistance level established at 0.7328. On the 1-hour chart, NZDUSD broke out from the bullish ascending triangle pattern and rallied to the upside target of 0.7371 before falling back below 0.7325.
Purchase daily PUT options in NZDUSD at 0.7360 - 0.7325 for a 21:00 GMT expiry as we expect NZDUSD to pull back lower towards 0.7265.
Target price: 0.7325
Expiry: 21:00 GMT