Anticipating a Softening Stance: Projections for New Zealand's 4Q CPI at 4.6%

NZD: We expect 4Q CPI at 4.6%

We recently updated our estimates for the fourth quarter CPI in New Zealand, and expect a 0.4% quarter-on-quarter print which translates into 4.6% year-on-year. Consensus is centred at 4.7%, signalling that expectations are for a marked undershot compared to the latest RBNZ fourth quarter CPI projections at 5.0%.

The Reserve Bank of New Zealand delivered a hawkish surprise at the November meeting as it signalled no rate cuts until mid-2025 and threatened more tightening if inflationary pressure increased. We think that today’s CPI print will force some softening in the RBNZ’s stance when it announces monetary on 28 February. New projections will be released at the February meeting, and softer than expected growth and (in our view) inflation – as well as a dovish repricing in global rate expectations – may well prompt a revision lower in the rate path.

Markets are already pricing in 95-100bp of easing by the end of the year in New Zealand, meaning that NZD is probably more likely to be affected by stronger data and hawkish RBNZ surprises than by a data-miss/dovish surprise combination. For this reason we think that NZD/USD will not get hit hard as the RBNZ pivots to a more dovish stance and still favour the pair to trade higher from the second quarter on the back of a weaker USD and improved risk environment. Today, the rebound in China’s sentiment can help absorb the impact of softer inflation for NZD.