NZD has taken another big hit, this time from much weaker than expected NZ retail sales numbers. NZDUSD sunk around 40 pips immediately following the data, with the headline figure printed at -0.4% (exc. inflation) for Q3, down from 1.3% the previous quarter. The number looks even worse after we take seasonal factors out of the equation, representing a 0.8% fall for the quarter.
The data certainly raises pressure on the RBNZ to cut the official cash rate next month, especially when combined with the abysmal employment data out of NZ earlier this month. Also, burrowing into the retail sales data, we notice that it is the largest parts of the retail sector that are suffering; Supermarket and grocery store sales (down 1.6%), motor-vehicle and parts retailers (down 1.8%) and fuel retailing (down 1.9%), this suggests that there is an underlying lack of confidence in NZ.
The RBNZ has indicated there is room for more policy easing if needed, but when deciding on monetary policy it has to look at the economy as a whole. Whilst today’s retail sales data doesn’t bode well for GDP growth in Q3, housing growth was very strong during this period. Hence, the question now becomes whether strong housing growth can overshadow weak data in other parts of the economy.
Will the RBNZ cut in December?
Overall, we don’t expect the recent spate of poor economic data will be enough to push the RBNZ to cut the official cash rate by 25 bps in December, assuming there isn’t a massive downturn in global sentiment. This is broadly in line with market expectations. However, if NZ continues down this dark path there is the possibility the RBNZ will be forced to act to stimulate domestic growth.
AUD on the rise, underpinned by strong consumer confidence data
In Australia, there are more indications the RBA’s rate cuts this year have found their way in to the real economy. Consumer confidence data released today jumped to the highest level in 19 months, increasing 5.2% during November. This fits well with the RBA’s relatively upbeat recent monetary policy statement, which cited signs of economic recovery as reasons why the bank left rates on hold. Nonetheless, there is still clearly a lot of despair amongst Australian businesses, which would likely intensify if the RBA elected to hold the official cash rate steady again in December.
Also out of Australia, the Australian Bureau of Statistics released wage data for Q3, with the wage cost index climbing 0.7% q/q, slightly less than the market was anticipating.
Overall, the aussie was subject to limited downside action on the back of the wage data out of Australia. However, a push higher earlier in the session was underpinned by the strong consumer confidence data. AUDUSD was only stopped on the upside by a resistance level around 1.0455.
Ones to watch: AUDNZD
This pair has been a strong performer over the last week, with the aussie holding fairly steady after the RBA surprised the market by leaving interest rates alone earlier in the month and kiwi pushing lower, underpinned by weak economic data which may send the RBNZ further into the dovish camp. This theme may continue, at least until both reserve banks meet in December.
Technically, the pair is running into resistance around its 61.8% retracement level from the sell-off that started in August. Our bias is higher above 1.2700, with a possible push above 1.3000 if the pair can break strong resistance around 1.2800.
AUDNZD – daily