New Zealand's Consumer Price Index (CPI) eased further in the fourth quarter of 2023. NZD/USD broke back above 0.6100 on the release. Economists at ING analyze the pair’s outlook.

Non-tradeable inflation offers RBNZ a hawkish "loophole"

New Zealand’s inflation matched estimates at 0.5% quarter-on-quarter and 4.7% YoY in the 4Q print. However, non-tradeable CPI did come in hotter than expected at 1.1% QoQ, which has led to a move higher in short-term NZD rates.

The stronger non-tradeable CPI may offer an excuse for the RBNZ to stick to some hawkish narrative on 28 February, although they will need to admit that general inflation pressures have declined and the economy underperformed, making any promise of higher-for-longer a harder sell to markets.

The next key release in New Zealand is the 4Q jobs report on 6 February. Until then, expect volatile Chinese sentiment and USD dynamics to drive NZD performance.

Even in the case of an RBNZ dovish shift, we like the chances of a higher NZD/USD beyond the short term as the Kiwi benefits from a broader USD decline and Fed rate cuts. Our year-end target is 0.6400.