NZD/USD falls as tobacco prices push domestic inflation to 3.4%

The NZD/USD declined after the country’s statistics office released the consumer price index (CPI) data for the first quarter. The New Zealand dollar also rose after a series of positive headlines about how NZ has dealt with the coronavirus pandemic.

New Zealand Q1 CPI rises

Consumer prices in New Zealand rose by an annualized rate of 2.5 per cent in the first quarter, according to data from the country’s statistics office. This was higher than the fourth quarter’s growth of 1.9 per cent and higher than the 2.1 per cent that analysts polled by Bloomberg were expecting.

The CPI rose by a QoQ rate of 0.8% in the first quarter, which was slightly higher than the previous quarter’s growth of 0.5 per cent.

According to Statistics New Zealand, the rise in CPI was mostly because of higher cigarettes, whose price rose by 11 per cent. This increase was mostly because of a new excise duty that took effect in January. Meanwhile, rent prices rose by 1.2 per cent in the quarter and 3.7 per cent on an annual basis.

The rise in tobacco and rental houses was offset by a 1.7 per cent decline in airfares, which was mostly influenced by the falling oil prices. In a statement, Pail Pascoe of Statistics New Zealand said:

“While there have been reports of higher prices for flights associated with the COVID-19 pandemic towards the end of March, general price falls throughout the rest of the quarter and the timing of collecting data have still resulted in a sizeable fall.”

Similarly, annual domestic inflation rose by 3.4 per cent, which is the highest increase in non-tradable inflation. This was the highest inflation rate since 2011 and is the third straight quarter it has been above 3 per cent.

New Zealand praised for coronavirus response

These numbers came at a time when New Zealand has received praise for its handling of the coronavirus pandemic. In a recent report in the Washington Post, Anna Fifield praised the country for “not only beating the pandemic, but squashing it.” She cited Jacinda Arden’s strict policies for limiting movements.

In another report, Bloomberg praised the country for being the first one to attempt to eradicate the disease. Matthew Brockett wrote:

“It (New Zealand) adopted one of the strictest lockdowns in the world before a single death was reported, and has isolated infections to keep the disease from spreading out of control.”

Other publications like The Guardian have also praised the country. Data also appears to support the country’s efforts. In recent days, the number of new infections has remained below 15. This is commendable for a country of more than 5 million people.

Meanwhile, the government and the central bank have unleashed several measures to support the economy. The government has provided more than $12 billion to support businesses and individuals. This amount is equivalent to 4% of the GDP.

$9 billion of these funds went directly to businesses while about $2.8 billion of it went directly to people on welfare. Other funds went to the aviation and health sectors.

The Reserve Bank of New Zealand also intervened by lowering interest rates to the lowest level on record. Additionally, the bank initiated its first quantitative easing program worth about $17 billion.

NZD/USD technical forecast

On the daily chart, the NZD/USD pair has been on an upward trend after bottoming at 0.5480 on March 19. The pair found some resistance at the 50-day EMA and the 50% Fibonacci retracement level of 0.6118 on April 14. As a result, the price is trading slightly above the 38.2 per cent retracement level and along the 25-day EMA. The bullish trend will likely remain if it manages to move past the 50% retracement level of 0.6118.