NZ Dollar Weak Despite Positive Inflation Data

The New Zealand dollar was soft today, falling against the majority of most-traded currencies, though managing to eke out gains versus its commodity peers (but it has lost gains against the Canadian dollar by the time of writing). The kiwi fell despite better-than-expected inflation data.
Statistics New Zealand reported that the Consumer Price Index rose by 0.5% in the December quarter of 2020. While it was a slowdown from the previous quarter’s 0.7% rate of growth, the actual reading was noticeably better than the median forecast of a 0.2% increase. Furthermore, annual inflation remained unchanged at 1.4%, beating expectations of 1.0%. It was in the lower part of the central bank’s target range of 1%-3%. Analysts considered that to be positive for the currency as low inflation reduces the incentive for the Reserve Bank of New Zealand to cut interest rates further. What is more, the bank may consider raising rates as the economy starts to recover from the coronavirus pandemic.
While the New Zealand dollar climbed after the release of the positive inflation data, it reversed its movement after a while. Market analysts have several theories for why it has happened. Some argued that the market sentiment turned sour, making investors seek safer assets. China initiated a partial lockdown in the capital city of Beijing after several cases of the COVID-19 were discovered, leading to a pullback in the stock market. The news spooked investors, driving them away from riskier assets, including commodity-related currencies.
Another possible reason for the kiwi’s lackluster performance was the contraction of New Zealand’s manufacturing industry. The seasonally adjusted BusinessNZ Performance of Manufacturing Index dropped from 54.7 in November to 48.7 in December, falling below the neutral 50.0 level of no change. The decline of the industry followed six consecutive months of expansion. The index reached the lowest level since May. All components of the index declined, with only production remaining above the 50.0 level.
AUD/USD dropped from 0.7214 to 0.7171 as of 13:48 GMT today. NZD/CAD was up from 0.9113 to 0.9139 intraday but has backed off to 0.9107 later. Meanwhile, AUD/NZD fell from 1.0757 to 1.0748.
If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

Original from: www.earnforex.com