Kiwi Catches Bid After Strong CPI Report Makes OCR Cuts Look More Distant

NZD/USD caught a bid Thursday after Westpac backpedalled on their RBNZ easing call and said that they now expect no OCR reductions in the foreseeable future, ditching their earlier forecast of two 25bp cuts in 2021. Broad-based greenback weakness supported the move, helping the pair stage a foray above the $0.7200 mark. NZD/USD eased off into the WMR fix, but resumed gains thereafter, posting a ~20 pip leg higher in the U.S./Asia crossover in reaction to above-forecast NZ CPI data. This allowed the pair to return above $0.7200 and find itself within touching distance from Thursday's intraday high.

• New Zealand's consumer prices rose 1.4% Y/Y in Q4, maintaining the pace seen in Q3, with consensus looking for a 1.1% increase. The quarterly print came in at +0.5% Q/Q vs. exp. of +0.2%. A 6.2% Y/Y increase in accommodation prices contributed to the overall change, alongside housing and used cars.
• Inflation data coupled with big offers seen at the RBNZ's latest QE operation pushed NZ 10-Year yield to 9-month highs, lending support to NZD.
• Kiwibank joined Westpac in scrapping their call for a negative OCR after strong inflation data. Their chief economist said that they now expect the OCR to be left on hold "well into 2022."
• The CPI report overshadowed BusinessNZ M'fing PMI published 15 minutes earlier. Headline index deteriorated to 48.7 from 54.7, suggesting that the sector has flipped into contraction. BNZ commented that "perhaps the Dec dip is just monthly noise and it will pay to monitor upcoming results," while NZD/USD shed a handful of pips immediately after the release.
• NZD/USD trades flat at $0.7215 as we type, consolidating gains registered in the U.S./Asia crossover. Thursday's high of $0.7223 has capped gains so far. A break above there as well as Jan 13 & 14 highs of $0.7240 would open up Jan 6 high of $0.7315. Bears look for a dip through the 50-DMA/Jan 18 low at $0.7098/96 would shift focus to Dec 28, 2020 low of $0.7084.
• New Zealand's docket next week features credit card spending (Tuesday), trade balance (Thursday) & ANZ Consumer Confidence (Friday).