It’s been a relatively quiet week in New Zealand, but we are looking ahead to some important data. With Australia expected to stay quiet on the economic front, commodity currency traders might want to look at the smaller oceanic cousin.
There has been some positive news out of the US recently that has put a little pressure on the NZDUSD. Then the direction reversed following weaker than expected US home sales figures. This has left the pair reacting mostly to external factors.
This might be the theme at least until the next Fed meeting. Most of the world markets are currently waiting on the US regulator. More importantly for the commodity currencies will be the balance sheet normalization plan.
The trajectory of bond yields have already been positive for carry trade flows, but the issue of the dovish slant from the RBNZ remains.
So far this month, there’s been some positive news from New Zealand’s primary export and a key economic driver: dairy. Dairy prices are once again on the rise. All through the second quarter, dairy prices had been moderating as consumer demand dipped. The key here will be the market outlook we will receive with the half-year reports from major dairy producers before the end of the month.
Tomorrow, we get some data on consumer demand. This will be ahead of the release of the quarter consumer sentiment figures.
The RBNZ will report credit card spending, which is expected to have increased by 5.4% annualized. This would be a drop from the 6.6% registered in the prior month. However, that’s in line with the ups and downs in the series that we’ve been watching. Plus, a slight drop in the middle of winter is not unusual.
Where there is more reason for concern is that after a record summer season of tourist arrivals, winter visitors have significantly disappointed in June. This is a worrying sign for the start of the ski season, which is being impacted by the economic situation in Australia.
The Bond Yields
The other factor to consider is capital flows inspired by the bond yield differentials. With the aggressive actions taken by the RBNZ (along with RBA) the attraction for kiwi capital investment has been dropping.
This in combination with the drying up of liquidity thanks to the Fed’s balance normalization. That’s money that would otherwise flow to New Zealand and support their dollar, and it’s in short supply.
Anyone banking on the hope for higher yields in the near future received mixed signals from the quarterly CPI data on Tuesday. The annual figure come in closer than expected to the bank’s target. But, the arguably more relevant second quarter disappointed analysts looking for some impact from the rate cuts.
Next week we are likely to not get much to change the scenario on the economic front. We only have the trade balance in the middle of the week on tap.
The projection is for the trade deficit to narrow slightly. But with milk production dropping in the winter, the NZ economy might not be in a position to best capitalize on potential increases in dairy prices. Bulls will likely have to rely on data coming from outside the country for a while.