Later tonight (or really early tomorrow depending on where you are,) we have the release of major economic data that could move the NZD for the week.
After this release, the kiwi is likely to move only on technicals and external factors. This will probably be the case until next Tuesday when we get the CPI figures.
In the absence of monthly consumer confidence data, traders look at electronic card retail sales to gauge potential future price moves and get a heads-up about inflation expectations.
Given the rate trajectory of the RBNZ, and expectations for further easing in monetary policy, this data could be especially relevant to the market this time around.
What We Are Expecting
Just before the release of the data, we have the release of the BusinessNZ Manufacturing Index, the NZ equivalent of manufacturing PMI.
Expectations are for this to continue in contraction at 49 points, slightly up for 48.4 prior. This could provide some optimism since manufacturing sentiment has been dropping all year. If expectations are met, it could mean that it’s found a bottom and is finally bouncing back.
The market usually focuses on the monthly change in Electronic Card Retail Sales. We can expect this to stay positive at +0.5% compared to +1.1% last month. Although lower, it would still be a positive sign. It would provide some confirmation of moving above the pretty much stagnant range that retail sales have been in since the beginning of the year.
Annualized retail sales are not as auspicious. Projections indicate that they will increase only 0.5% compared to 2.8% in the prior month. This is attributed to having a stronger base of comparison last year, before the decline in the market was registered.
Also, September is pretty much the middle of winter in New Zealand, when economic activity is at its lowest ebb.
The Market Reaction
The markets are likely to shrug off the PMI equivalent.
NZ manufacturing is a relatively small segment of the economy and is primarily for the domestic market. It’s relevant for forex traders because it can compound the perception of the economic outlook.
Lower or higher expectations of kiwi manufacturers provide insight into how experts expect the domestic economy to evolve over the next six months.
As for the electronic card retail sales, for a while now, they’ve been bouncing between -0.5% and +0.5%, and a second consecutive result at or above the top of that range would likely provide some strength in the currency.
A drop back to negative would signal last month’s results were an exception, and likely erase some of the bullish outlook.
Turning a Corner?
The NZD has been tracking higher following much better than expected building permits. This is a sign that the downturn in the housing industry might be coming to an end.
The drop in housing prices was the first major sign of the economic consequences of the global economic woes and trade war.
Surveys show that New Zealanders are, like most of the rest of the world, switching to online sales. Even as general retail sales remain somewhat stagnant, online sales are increasing by 7%. And the largest beneficiaries are domestic online retailers.
In fact, foreign online retail sales have actually fallen. They are currently lower than domestic sales. This could have implications for the trade balance and capital flows, which would likely support the currency.