Kiwi parry's Inflation woes ahead of Bernanke Testimony

Kiwi parry's Inflation woes ahead of Bernanke Testimony

By Andrew May (Sales Trader, CMC Markets New Zealand)

Amidst the weakest local core inflation reading since 1999, the Kiwi dollar has found decent momentum ahead of Fed Chairman Ben Bernanke’s semi-annual testimony due tomorrow morning.

We open today up US1c or 100pts to 0.7890 a far cry from the previous low experienced as little as 24hrs ago when the Kiwi was driven lower due to the third consecutively poor consumer price index reading of 0.7% (YoY) To paint a picture, the NZ economy is contracting by 0.1% per quarter and has done so for the last three quarters. The implementation of macro prudential tools within the RBNZ’s armoury to bolster growth sentiment above 1% will most certainly be required yet without disturbing the clear and present housing pandemic.

Inflation levels globally are left bemused and stagnant, yet there were a few ‘sparks in the furnace’ last night with UK, Europe and US economies delivering headline readings. The US economy notably posted a decent gain of 1.8% vs 1.6% exp (YoY) alongside further evidence of industrial growth. This is more food for thought ahead of the embattled Bernanke’s upcoming testimony, which follows last Thursday’s surprise dovish tone which caught markets clearly off guard.

In either predisposition the New Zealand dollar has flourished regardless as investors sought profit cautiously and closed greenback positions in advance of tomorrow’s policy meeting. So in the interim, risk has returned to the table with both Aussie and Kiwi dollars the biggest performers in the face of a greenback pullback. Also adding weight to the drive of the New Zealand dollar was the fortnightly Fonterra global dairy price auction in which saw prices soar 4.9% the largest gain since April.

So the stage is set for what could be an interesting and volatile 24hrs. We have the Kiwi once again eyeing the elusive US 80c highway firmly supported at 0.7795 testing 79c. A continuation of ‘dovish’ tapering rhetoric will no doubt continue to weaken the greenback and plug the resource sector. We are also witnessing a solid Q2 earnings season so far, all of which could see global economy start to believe a bit more in the recovery machine.

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