RBNZ could leave door open for future easing due to deteriorating data, long AUD/NZD?
During last months meeting, RBNZ kept interest rates unchanged and acknowledged the slowdown in economic growth in Q1, smaller fiscal stimulus and declining business confidence which hit a 10-year low. Furthermore, ongoing trade tensions between US and China which created uncertainties in New Zealand exports.
RBNZ ended the session noting that they are well positioned to manage an interest rate change in either direction if necessary, up or down. This opens doors for a possible rate cut.
We expect RBNZ this time round to keep interest rates unchanged as well. This is due to economic data from New Zealand worsening since the previous rate statement.
- Consumer and business confidence fell from 0.4% to -1.3% and -27.2 to -44.9 last month respectively. Business confidence is currently at a 10-year low.
- Service and manufacturing sector growth slowed from 57.3 last month to 52.8
- Trade balance turned negative since last month from 263million to -113million.
The only advantage of a weak New Zealand dollar is that dairy products are now more attractive to the global market and especially China whereby yuan has weakened drastically as well.
Lastly, the trade tension between US and China has also taken a toll on New Zealand exports given that China is New Zealand biggest trading partner. The weakness in yuan will continue to pressure kiwi dollar.
Given the circumstances New Zealand is facing, we will expect RBNZ to maintain its dovishness and remain reactive to any developments in both economic data and trade tensions.
We could see AUD/NZD take out 1.113 price this week.
Fullerton Markets Research Team
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