Inflation jolts back to life in both the US and China

Inflation jolts back to life in both the US and China, catching the attention of currency markets. Eyes will also be on some big Chinese data this week, plus some key NZ influences

The New Zealand dollar ended last week lower as the US dollar strengthened at the end of the week.

A higher reading in US producer prices, up a massive 1.0% over the month and announced early Saturday morning, caused markets’ recent inflation fears to be re-awakened.

The US consumer inflation report, CPI, is due on Tuesday night and will be carefully watched.

CNY jolted back to life

In Asia last week, inflation also tracked higher, with the Chinese consumer inflation report back into the positive, up 0.4% over the year. The producer prices report was up 1.0%.

The Chinese inflation reading sparked some life into the Chinese currency which has suffered a tough start to the year.

After climbing to a three-year high versus the US dollar, the Chinese yuan has drifted lower as investors favoured the rapidly improving growth prospects in the US.

While the CNY has been lower so far this year, most forecasters expect the Chinese currency will regain some strength, with the Reuters FX Poll median prediction looking for a 2.3% gain in the CNY over the next 12 months (source: Reuters, 31  March, 2021).