New Zealand economy has been giving us mixed signals in the past months. There are a bunch of factors influencing the Kiwi’s movements on the forex dance floor, which could end up changing the direction of the NZD (Mr. Kiwi) who has been testing a very important resistance level as traded against the US dollar. I did a full analysis on the NZD/USD pair earlier today but for those of you interested only on the Fundamentals, here are the 5 most important ones. Are you ready?!
1- Manufacturing Expanded in September
Manufacturing activity in the New Zealand expanded at a slightly faster pace in September from the previous month as production picked up and new orders continued to improve.
Business NZ, an advocate for enterprise and businesses across New Zealand said “Production was at its highest level since December last year, while new orders continued to improve. Overall, this should flow through into healthy results for the last quarter of the year.”
So there ya go. Here was your first positive fundamentals for New Zealand.
2- GDP Grew Less than Expected in Q2
New Zealand’s Q2 GDP grew by 0.4%, which is a bit better than Q1’s 0.2%. That’s good news, right? But on an annualized basis, it only grew by 2.4%, making Q2 the second consecutive quarter of slowing annualized growth.
The second-quarter expansion was less than the 0.6% forecast by the Reserve Bank of New Zealand, which was also the median forecast of 16 economists surveyed by Bloomberg News.
Based on trade data, consumer sentiment, and business conditions, some forex traders probably expect Q3’s GDP growth to slow down a bit, but HOT summer and Christmas shopping season is coming up in the Southern hemisphere so we could be positively surprised.
3- Trade Balance was Terrible in September
Yikes! September was the third consecutive month that New Zealand’s trade gap has widened. Its trade deficit jumped from NZD 726 million back in July to NZD 1,035 million in August.
On the surface, the trade data looks horrible for New Zealand economy. However some long-term implications such as higher imports which were due mainly to an increase in capital goods has helped market participants have a more positive outlook on New Zealand than numbers suggest, and probably the reason why Mr. Kiwi has been dancing up ever since the terrifying trade numbers were out!
The next Trade Balance release is scheduled for October 26th.
4- Dairy Prices have Risen
Global dairy prices rose to their highest since March, pulling further away from recent 12-year lows in decreased supply. Yes we are talking mild and cheese here. The higher prices for dairy products is a good thing for New Zealand economy, because their trade balance relies so much on trade exports.
The benchmark GlobalDairy Trade (GDT) price index climbed 9.9 percent beginning of October, however slowing demand in China could still be a drag. China is the biggest market for top exporter New Zealand, which accounts for about 30% of global trade in dairy products.
“All up, the slow start and limited GDT offerings are expected to continue to be price-supportive for now, especially while it’s the European seasonal lull for milk supply and seasonal high period for Chinese milk imports,” ANZ analysts said in a research note.
The GDT prices are released twice a month, and the next reading is coming up on October 20th.
5- Q3 CPI hotter than expected
New Zealand inflation just heated up! During the third quarter of the year prices rose by 0.3%, below the 0.4% gain of Q2 but higher than the median market forecast for an increase of 0.2%. The above-consensus quarterly print left the annual rate of inflation at 0.4%, higher than the 0.1% level of Q2 and expectations for an increase of 0.3%.
New Zealand Economy Summary
To sum it up, the current data are mixed while trying to paint a pretty picture for New Zealand, but at least the manufacturing sector and inflation seem to be picking up. The increase in imports for capital goods is a good sign too, so New Zealand and the Kiwi could potentially see better times ahead.