Kiwi Holds Firm After CPI Beat, Despite Return Of Mild Cautious Feel

The kiwi went bid after New Zealand's Q3 CPI data poured fuel on fears of an inflationary blowout. Headline inflation rate printed at +4.9% Y/Y, the fastest pace in a decade, overshooting the RBNZ's projection from their latest MPS (+4.1%) as well as consensus forecast (+4.2%) and estimates of all economists surveyed by BBG. The release boosted RBNZ tightening bets and the OIS strip now prices ~37bp worth of OCR hikes at the Reserve Bank's next monetary policy meeting, while BNZ said they see the odds of a 50bp hike in November at "just a tad under 50:50."

• The RBNZ released their preferred metric of core inflation after the main inflation report hit the wires. Sectoral factor model inflation accelerated to +2.7% Y/Y in Q3, moving further above the mid-point of the Reserve Bank's target range.
• NZD/USD briefly showed above a key layer of resistance from the 200-DMA/descending trendline drawn off Feb 2021 high, but struggled to make much headway beyond there and trimmed gains.
• Strong domestic inflation data allowed NZD to withstand pressure applied to the broader high-beta FX space by negative risk sentiment. The kiwi's Antipodean cousin AUD led losses in G10 FX space as a result.
• Sterling showed a modicum of strength in early trade, after BoE Gob Bailey said that the central bank will "have to act" to tame inflation, but gave away initial gains as defensive flows kicked in.
• Safe havens USD and JPY traded on a firmer footing as mildly cautious mood took hold. USD/JPY went offered into the Tokyo fix but recouped losses later on, oscillating in close proximity to multi-year highs printed last Friday.
• The yuan looked through a mixed bag of China's quarterly GDP data and monthly economic activity indicators.
• Today's economic docket includes speeches from Fed's Quarles & Kashkari, ECB's de Cos & BoE's Cunliffe as well as U.S. industrial output & Canadian housing starts.