Upbeat inflation data pushes back RBNZ rate cut expectations

Statistics New Zealand data released on Monday showed that NZ consumer price index had risen 0.2 percent in the first quarter, higher than the 0.1 percent expected by analysts. Year on year came in line with expectations at +0.4% and 0.1% previous.

Details of the report showed that the surprises largely being around the magnitude of the biggest price movements. The largest increases came from a 9.4% increase in tobacco, reflecting the last of the scheduled hikes in tobacco excise duty, and a 2.5% rise in education fees at the start of the new study year.

The market had been bracing for the risk that a weaker number might narrow the odds of a cut in interest rates at the Reserve Bank of New Zealand's policy meeting next week. Data will definitely alleviate some of the immediate pressures on the Central bank to act at next week's meeting.

"While the data certainly doesn’t rule out the RBNZ cutting the OCR again next week, we don’t see it as the smoking gun that the market was hoping it would be. We continue to see the OCR going lower, but we are wary of the trade-offs this will bring." said ANZ in a report

CPI data led to a bit of a kiwi rally. NZD/USD closed a bearish gap after release of the much awaited CPI data, which beat expectations. New Zealand government bonds gained amid the general risk-off mood, sending yields 3 basis points lower along the curve.