The New Zealand Dollar had very similar price action to its Aussie cousin last week, though its peak on Wednesday came somewhat earlier during the day and the sell-off against the US Dollar on Friday was less marked; allowing the AUD/NZD cross to trade down on to a 1.06 ‘big’ figure by the New York close. Indeed, whilst AUD/NZD fell to its lowest since Christmas, NZD/USD only eased back to the lowest in 10 days, closing in New York around 0.7215; around 1 ¼ cents below its midweek peak.
The long-awaited Q4 GDP figures released last week fell short of consensus expectations. Most of the banks locally had penciled-in growth of 0.7% but the New Zealand economy actually grew 0.6% in the final three months of 2017, the same pace as the previous quarter. Although the year-on-year rate accelerated to 2.9%, it was also below the 3.1% expansion expected by economists. For the full year 2017, the economy grew by 2.9%, down from 4% in 2016. On Thursday this week, the RBNZ Board meeting will be the last under the interim leadership of Grant Spencer. Incoming Governor Adrian Orr takes up his post on March 27th and the big focus of attention will be the new Policy Targets Agreement. In an interview last week, Finance Minister Grant Robertson said, “I understand the limits of monetary policy, so we want [the Reserve Bank] to be considering maximising employment but, unlike a particular inflation target, we would not be seeking a particular employment target through monetary policy.”
The current PTA between the Government and Central Bank outlines the RBNZ’s commitment to keep inflation between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near a 2% target midpoint. The 2% target was added when Graeme Wheeler took over in 2012; mainly to signal a symmetry of tolerance around a mid-point but also to underscore that a number persistently just under 3% would not be a desired outcome. Before the focus turns exclusively to the RBNZ, today we have the Performance of Services index, on Tuesday we get Westpac’s consumer confidence report and Wednesday brings the net migration numbers. The New Zealand Dollar opens in Asia this morning having closed on Friday at USD0.7220 and AUD/NZD1.0690.