New Zealand’s expected decline in inflation may impact the Kiwi while benefiting local equities in Asia
by VT Markets
/
Jul 20, 2025
The Japanese market is closed today for a holiday after an election that didn’t favor the ruling party. This puts pressure on Prime Minister Ishiba.
Economic updates are limited, with the key focus on New Zealand’s Consumer Price Index (CPI). It is expected to drop quarter-on-quarter but rise year-on-year. The lower quarterly CPI might hurt the New Zealand dollar but could boost local stocks.
China’s Monetary Policy Update
The People’s Bank of China will release its monthly Loan Prime Rate (LPR) today. In May, the LPRs fell by 10 basis points for both 1- and 5-year loans, resulting in rates of 3.0% and 3.5%. No changes are expected in today’s announcement. The main policy rate, known as the 7-day reverse repo rate, is at 1.4%.
Due to the political uncertainty around Mr. Ishiba, there may be opportunities in Japanese market volatility. Historical data shows that when Japan’s leadership is questioned, like during the 2021 transition, the Nikkei Volatility Index jumped more than 20% in the weeks that followed. Traders might want to consider buying Nikkei put options or selling futures to protect against a possible downturn.
New Zealand’s Economic Outlook
The inflation report from New Zealand gives a clearer view of the kiwi dollar’s future. A decrease in CPI will match the Reserve Bank of New Zealand’s predictions for 2024, which suggest inflation will return to target by late 2025. This could strengthen expectations for interest rate cuts, making it a good time to buy put options on the NZD/USD pair.
In China, the central bank’s expected inaction might be seen negatively by the markets. With youth unemployment still high and the property market struggling after a 20% price drop since 2021, keeping rates steady signals a lack of support. This situation presents a strong case for purchasing puts on Chinese equity ETFs, like the FXI, in anticipation of negative market sentiment.
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by VT Markets
Jul 20, 2025
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