Inflation Overshoot Sends Kiwi Flying

The kiwi received some further support from hawkish OCR-hike wagers toward the end of a week marked by aggressive RBNZ repricing. Upbeat inflation data provided a catalyst this time, as headline CPI inflation (+3.3% Y/Y) surged past the upper bound of the RBNZ's target range (+1.0%-3.0%) and topped estimates of all economists surveyed by Bloomberg. The kiwi slowly ground off its reaction highs, when the release of the RBNZ's sectoral factor model of core inflation prompted another leap higher. The Reserve Bank's preferred metric of core inflation registered at +2.2% Y/Y in Q2, exceeding the midpoint of the target range.

• NZD/USD jumped to $0.7029 after the release of the initial inflation report. AUD/NZD dipped to its lowest point since Feb 4, piercing support from May 27 low of NZ$1.0601 in the process, as the AU/NZ 2-Year swap spread moved to fresh cycle lows.
• Broader commodity-tied FX space traded on a firmer footing, with BBG Commodity Index seen ticking marginally higher. Safe haven currencies went offered, despite negative showing from most regional equity benchmarks. JPY paced losses, shrugging off the latest monetary policy decision from the BoJ.
• USD/CNH extended gains as the PBOC fixed its USD/CNY midpoint at CNY6.4605, 19 pips above sell-side estimate.
• Final EZ CPI takes focus in Europe. Highlights of the U.S. session include retail sales, flash U. of Mich. Survey & comments from Fed's Williams.