This week is shaping up to be a busy one for NZD traders. A host of data is coming from New Zealand and Australia that can all be market moving. Later tonight we get trade-related numbers such as dairy prices and current account. Then, tomorrow evening we get the first look at last quarter’s GDP.
Schedule and Expectations
We start later today with the scheduled release of the GDT index. The index doesn’t usually have a fixed release time. Expectations are for global dairy prices to have increased just 0.1% in the last fortnight, compared to the 3.3% increase prior. This will give a bit of a pause to the broader trend higher in this data.
Then at 22:45 CET (or 17:45 EST) we have the release of the quarterly current account and its annualized counterpart. The consensus among economists is that this data will improve to -NZD3.49B from the -NZD6.15B registered last time around. This improvement, however, wouldn’t be enough to significantly move the annualized data. The data is expected to worsen slightly at -NZD10.6B compared to the -NZD10.5B registered prior.
Tomorrow Wednesday at 22:45 CET (or 17:45 EST) we have the big event for the kiwi this week – the release of the quarterly GDP. The GDP expected to increase just 0.2%, for an accumulated 2.8% annual. Although that would be a bit of a drop on a quarterly basis from the 0.3% in Q4, annually, we’d see a bump of two decimals from 2.6%. A good result here would help clear some worries. Analysts have been expecting New Zealand to potentially have some economic spillover from the negative situation in Australia.
Although the Global Dairy Trade Price Index has lost some relevance, it’s still important for the NZ economy. This is despite increased diversification of the economy. Since late last year, dairy prices have made a habit of beating expectations. This is because they are driven by a supply glut, which we’ve talked about previously. With the slow pace of bringing new production online, the situation is likely to continue for a while, supporting the NZD against its pairs. We shouldn’t forget, though, that the price had been depressed for most of last year. We should also remember that the index is still in the process of returning to its prior levels.
The current account is a bit more worrying, however. It has a decidedly marked seasonal component. The deficit shrinks during the winter and expands during the summer. A drawback towards the zero-line is normal for the first quarter, but projections for this time around are for it to come in at a record current account deficit for the first quarter. This is after the fourth quarter registered the worst current account since the sub-prime crisis.
While this might be concerning for most currencies, there is a particularity to New Zealand that helps mitigate this: tourism. Imports increase substantially ahead of the tourist season, so a larger current account deficit might be a better reflection of expectations for tourist arrivals than an issue with the economy.
The Economy As a Whole
The market tends to focus on the quarterly GDP number, which analysts expect to come in the with the worst showing since mid-2015. For the last couple of years, quarterly GDP has registered above 0.4% growth, adjusted for seasonality. With tourist arrivals marking another record for the season, thinking this is a reflection of a core issue with the kiwi economy would be understandable. However, the flash data is often revised.