As Australian CPI and GDP Decline, AUD / NZD Retests Its Monthly Low Below 1.0850

Following a precipitous decline in the Australian Consumer Price Index (CPI) data for the previous month, the AUD / NZD pair has been substantially offered by market participants. Reserve Bank of Australia (RBA) policymakers' longer-term patience appears fruitful now, as the monthly CPI has fallen dramatically to 7.4% from the consensus of 8.0% and the previous release of 8.4%.

The market viewed the Australian economy as a laggard in the FX domain, as the rate of soaring inflation has not yet shown symptoms of moderating. Despite the fact that RBA Governor Philip Lowe has already raised the Official Cash Rate (OCR) to 3.25 percent in an effort to tame sticky inflation, additional rate increases are still expected, as it would be premature to declare victory in the war against soaring price pressures.

Apart from the Australian inflation data, Gross Domestic Product (GDP) (Q4) figures landed lower than anticipation. The Australian Bureau of Statistics reported a decline in GDP (Q4) data from the consensus estimate of 0.8% and the Q3 figure of 0.6% to 0.5%. The GDP, when annualized, has been consistent with expectations at 2.7%. A decline in GDP numbers also showcases reduced demand from households, which will trim inflation projections ahead.

Despite the publication of the Caixin Manufacturing PMI data, the New Zealand Dollar and the Australian Dollar will remain active. According to estimates, IHS Markit will report a rise in economic data to 50.2 from 49.2 in the previous release.

This week, New Zealand's Retail Sales (Q4) data decreased by 0.6%, while the consensus estimate was for a 1.5% increase. A decline in household demand will likely have a moderating effect on future inflation in New Zealand, as firms will be forced to offer goods and services at lower prices to meet current demand levels.