NZ: Real GDP data helps support NZD – MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the real GDP data for Q3 in New Zealand was released earlier and the Q3 growth rate was stronger than expected and stronger than what the RBNZ expected with Q/Q growth of 1.1% versus a consensus of 0.8%.

Key Quotes

“Surging immigration and a housing boom are helping boost growth. However, because of revisions to previous quarters, the annual growth rate at 3.5% was slightly below expectations.”

“The obvious conclusion would of course be to assume stronger growth may mean the RBNZ tightens monetary policy sooner than expected. However, we still see ample scope for the RBNZ to hold off for some considerable period of time – perhaps as long as all of next year. While the GDP data was clearly strong, the RBNZ will have noted the weakness on the export side while the momentum in investment also slowed.”

“The RBNZ has considerable scope for maintaining monetary policy, with only the SNB with greater scope to do nothing than the RBNZ amongst all G10 central banks. The very low level of inflation, the less accommodative stance relative to other G10 countries and the stronger level of the NZD (relative to other G10 currencies) using our valuation metrics provides ample scope for RBNZ caution on taking monetary action.”

“Interestingly, markets don’t appear to agree with that analysis with the New Zealand yield curve showing the greatest extent of monetary tightening priced amongst all G10 countries apart from the US. If the RBNZ does at some point over the coming weeks take the opportunity to stress the scope it has to remain side-lined, the New Zealand dollar could have further to fall. We certainly see scope for AUD/NZD to move higher from here based on our RBNZ view.”