There are a few important data points coming out from New Zealand that could move the currency. One of them comes out after midnight European time. The big question in terms of the next major move for the currency is what is the RBNZ’s outlook for the next rate cut. Analysts are especially interested in upcoming inflation-related data.
Despite benefiting from better pricing for NZ exports over the last six months, the Kiwi economy has been struggling. An important indicator of that is manufacturing sales volume. Manufacturing in New Zealand is aimed at the domestic market. This can give us some insight into the underlying economic conditions on the island nation.
What We Are Expecting
The consensus of expectations is that manufacturing sales volumes increased by 2.0% in the first quarter. This would be identical to the prior quarter. Comparatively, though prices increased by 0.7%. This was an improvement over the -0.5% in the last quarter of the year.
The divergence between volume and price is an indicator that Kiwi manufacturers have their margins squeezed. We noticed this phenomenon at the end of last year. While there has been a slight improvement in the last three months, the gap between productivity and prices continues to widen.
Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
What That Means for Inflation Expectations
While manufacturing accounts for a relatively small portion of New Zealand’s economy, it can still give us important insight into how the economy as a whole is doing. If manufacturing prices aren’t going up, it shows that there is a weakness in demand, and that translates into sluggish inflation. People aren’t willing to spend more for products.
The tightening margins would be expected to put a strain on larger businesses in New Zealand as well. This will constrain wage growth further. While by itself this indicator isn’t a major issue, taken in the context of other indicators, it further inclines the balance towards the expectation of less inflation growth going forward.
Other Data Points
On Wednesday we get Electronic Card Retail Sales data, which also has a habit of moving the market. This is fresher data, and more directly related to inflation. Expectations are for transactions to have increased by 0.7% in the month. This would lead to an accumulated +1.6% in the year, a significant reversal from the +4.5% in the prior month.
The theory is that lower interest rates would translate into lower rates for electronic card users. This would help bolster demand and support inflation growth. This is why this figure is relevant, since if the RBNZ doesn’t see an improvement in consumer demand, they might be more inclined to cut the rate again.
The week closes out with BNZ Manufacturing Index and Food Price Index. Keeping with the theme of inflation, while generally, the central bank looks at core inflation, excluding food price fluctuations, this element does have an impact on disposable income. With regulators trying to increase monetary circulation, an increase in food prices might be seen negative for the economy. This may further support speculation for another rate cut.