- The April result for the 'heavy' traffic index was -1.8% m/m
Retail -0.4% m/m
- expected 0.2%, prior 1.1%
- And for the y/y, +5.2%
The NZD TWI has appreciated 3.5% since it last met in May. Yet verbal intervention may not hit the NZD for long given that the external environment is positive and NZ CPI is back on target.
RBNZ have a long tradition of complaining about NZD strength and occasionally threaten intervention - yet core global risk trends are a far larger determinant of the core NZD story
The US dollar index (DXY) retreated in late day trading yesterday on less hawkish comments from Fed member Evans but turned sharply higher in the Asian session. The subsequent rally has erased earlier losses and shows DXY trading at a one-month high.
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Bank of America Merrill Lynch Research expects the Reserve Bank of New Zealand (RBNZ) to stay on hold on Thursday.
"No change is expected to policy. But in our view there is a more convincing case for the RBNZ to consider shifting the policy bias toward the normalization of record low interest rates ahead of Australia. There is stronger economic momentum in New Zealand, a better fiscal position that will allow greater pro-cyclical infrastructure spending, improving terms of trade and notably better consumer sentiment than Australia," BofAML argues.
Trade-wise, BofAML recommends long NZD/JPY in the medium-term and is also comfortable selling AUD/NZD on rallies given the likely medium-term divergence in economic paths.
Official Cash Rate (OCR) stays at 1.75%
- Major challenges remain with on-going surplus capacity and extensive political uncertainty
- Core inflation and long-term bond yields remain low
- Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward
- The trade-weighted exchange rate has increased by around 3 percent since May, partly in response to higher export prices. A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.
- Growth outlook remains positive, supported by accommodative monetary policy, strong population growth, and high terms of trade ... Recent changes announced in Budget 2017 should support the outlook for growth
- The increase in headline inflation in the March quarter ... effects are temporary ... will bring future headline inflation to the midpoint of the target band over the medium term.
- Monetary policy will remain accommodative for a considerable period.
Bullish weekly and monthly closes in May have laid a strong foundation and a series of bullish MT momentum triggers highlight an increasingly positive environment.
A weekly close above 0.7330/50 will imply that the uptrend has much more to do on a multi-week to multi-month basis.
Only a weekly close below 0.7205 would place the immediate uptrend at risk of correction
The pair was under pressure in early trading as the dollar was seen firmly bid at the European open, however, softer than expected US data caused the dollar to weaken which led to a surge higher in NZD/USD.
The merchandise trade balance narrowed to NZ$103 million in May, from a revised $536 million surplus the month before, Statistics New Zealand said. Analysts in a median estimate called for the surplus to narrow to $420 million.