Kiwi drops as annual NZ CPI rate at lowest level since 1999

The New Zealand dollar slipped to $0.6366 in the early Asian session, from $0.6470 levels.

Pair slipped below the 3 month low of $0.6382 levels and currently trading around $0.6386 levels. Initial support is seen at $0.6332 and resistance at $0.6896 levels.

The CPI fell 0.5% in the December quarter, according to Statistics New Zealand, coming in much weaker than the market forecast of a 0.2% drop. Petrol prices were the main contributor, sliding 7.0% over the three-month period, while a 17% decline in vegetable prices also weighed down on the price index last quarter.

The annual change in the CPI was just a 0.1% increase, the weakest rise in more than 15 years, which was also mainly due to lower fuel prices.

The RBNZ targets an annual inflation rate of 1-3%, however, inflation has not been within the bank's target range since the September 2014 quarter and has not been at the bank's 2% target midpoint for more than four years.

The RBNZ cut the OCR by 100 basis points to 2.5% last year but many economists expect the bank to cut the cash rate to a record-low 2.0% this year as inflation continues to miss the bank's target.