Forex top mover of the week: NZD/USD

NZD/USD is the top mover at -1.61 per cent (-0.01145 points) this trading week. This was due to 3 key events that happened:

1. New Zealand's Q2 CPI data missed missed both the consensus readings from economists and RBNZ's own forecasts, thereby renewing rate cut expectations. The following are the data released:

Q2 CPI q/q: 0.4% vs. 0.2% previous, 0.5% consensus, 0.6% RBNZ forecast

Q2 CPI y/y: 0.4% vs. 0.4% previous, 0.5% consensus, 0.6% RBNZ forecast

2. The release of a consultation paper which discussed the risk of a housing bubble in New Zealand. The RBNZ is contemplating to cut rates in order to help inflation pick up as well as support the heavily indebted dairy sector. While cutting rates would make loans cheaper, which would certainly help the dairy industry, it would also encourage even more housing loans, thereby worsening the risk of a housing bubble.

The RBNZ is therefore left in a lose-lose situation, and this consultation paper and its proposals show that the RBNZ is trying to find means to keep housing loans in check, which may then give the RBNZ some breathing space to cut rates.

3. RBNZ Economic update. The RBNZ is worried about inflation and the strong Kiwi, saying that “A decline in the exchange rate is needed.” The RBNZ also seemed more determined about cutting rates, saying that: “At this stage, it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range.”