CPI Overshoot Inspires RBNZ Tightening Bets, NZD Rallies

The kiwi goes bid as New Zealand's consumer price inflation accelerated to +4.9% Y/Y in Q3, overshooting not just the consensus forecast (+4.2% Y/Y), but also all the individual estimates of analysts surveyed by BBG. The figure also topped the RBNZ's estimate from their August MPS (+4.1 Y/Y). The rate of inflation in Q3 was the fastest in a decade.

• The quarterly CPI report has boosted RBNZ tightening wagers, with the OIS strip now pricing ~30bp worth of OCR hikes at the next meeting. Note that the Reserve Bank have recently expressed concern with the current rate of inflation, which broke out of their target range of +1.0%-3.0% Y/Y.
• New Zealand's PSI report released earlier this morning showed that contraction in the services sector moderated in September. Headline index printed at 46.9, up from 35.4 recorded in August.
• Quick reminder that NZ Cabinet will review the current Covid-19 Alert Level settings at 16:00 NZDT/05:00 BST today. Director-General of Health Bloomsfield told TVNZ this morning that a Level 4 "circuit-breaker" in Auckland had been "actively considered" and cannot be ruled out, but refused to elaborate on the details of his advice to the PM. Experts have suggested that Alert Levels in Auckland and Waikato will likely remain unchanged, while there is a chance Northland moves down to Level 2.
• NZD/USD has added 25 pips so far and last operates at $0.7092, approaching resistance from the descending trendline drawn off Feb 2021 high/200-DMA at $0.7103/02. A break here would bring Sep 3 cycle high of $0.7170 into view. Conversely, bears look for a pullback under Oct 14 low of $0.6956.