By Orbex
Coming up we have some important data that could influence the NZD. The more remarkable will probably be the release of last quarter’s GDP numbers.
At this point, many might have completely forgotten the more optimistic run-up to the end of year holidays and the potential of an end to the trade war.
Remember when the worst possible things for the markets were increases in tariffs?
Anyway, New Zealand reports its GDP relatively late into the next quarter. This means the data is rather old. However, it’s still an important guide for the NZD, and the kiwis are in a somewhat of a unique position economically.
While the rest of the world is under the dark cloud of the coronavirus pandemic, New Zealand to date has only had 8 cases. And their economy is well-positioned for a quick rebound.
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Of course, that’s not to say that New Zealand stocks haven’t been affected by the global pandemic fears. The country is not exempt from the tectonic shifts in the markets.
And, with most investors looking to hold liquidity, Kiwi stocks have been falling in line with the rest of the world. However, unlike in Europe, shops aren’t closing. Domestic transportation is not halting either, and more importantly, New Zealand’s main trade partner, China, is restarting after officially declaring the epidemic controlled.
There is an offset between when Chinese economic activity starts to increase – and presumably, it will take some time to return to prior levels – and demand for products from New Zealand will return to prior levels.
We shouldn’t forget that New Zealand relies heavily on Chinese tourism. And travel from the Asian Giant is still on hold.
We can expect the first of the data later this evening, with the release of the GDT Price Index.
With the lockdown in Europe and expectations of increased travel halts in North America, demand for dairy has been on the wane. Therefore, expectations are for New Zealand’s chief export to diminish in price going forward. This could consequently cause a slight downward pressure on the currency.
The current account is likely to be overshadowed by currency flows related to general risk appetite in the market. The quarterly current account is generally the most negative in the final quarter of the year.
So, unless the figure substantially underperforms, it likely won’t be worth the market’s time. Additionally, the 75 basis point cut in the rate makes the current account situation rather moot during the easing cycle.
The data we want to keep an eye on is the quarterly GDP figure. That is usually the one that’s market-moving. And even with traders distracted by the global pandemic, it could still have an impact.
Expectations are for Q4 GDP to come in at 0.4%, a decrease in the speed of growth from 0.7% in the third quarter. Of course, the prior quarter was coming off of what was, up until that point, unprecedented monetary policy easing.
Projections indicate that the annual growth rate will increase to 2.5% from 2.3% prior. This would bring it back to the bottom of the growth rate range that New Zealand had been maintaining for several years.
In other circumstances, the RBNZ might have argued their policy was working. However, in practical terms, it might turn out to be a target for where investors hope the economy returns to after the COVID-19 situation is under control.
By Orbex