WILLING TON: New Zealand Dollar slipped lower Friday as global factors took precedence over a better-than-expected domestic retail sales report: GBP/NZD was quoted 0.5% lower at 1.9157, the NZD/USD was quoted at 0.7295 and EUR/NZD at 1.6878. The Kiwi currency is however tipped to keep its Australian and British rivals under pressure and advance in the months ahead argue currency strategists at Deutsche Bank.
Indeed, Thursday’s retail sales data provided another sign the New Zealand economy is taking last year’s change of government in its stride, with consumer spending having risen by 1.7% during the fourth quarter when markets had expected only a 1.4% increase.
Better than expected consumer spending comes just months ahead of a planned rise in the minimum wage, which will see low earners pay packets boosted by nearly 5% from April this year. Thursday’s report also augurs well for fourth quarter GDP data due in March.
“NZD has come a long way, posting the strongest performance of all G10 currencies since the new government took control. The market was concerned that new policies could affect growth, but seems to have gravitated to our view that disruption would be minimal,” says Tim Baker, an FX strategist at Deutsche Bank.
The New Zealand Dollar came under severe pressure in late 2017, dropping more than 6% against an extremely weak US Dollar, as markets took fright at New Zealand First’s decision to form a coalition government with the Labour Party. But it has bounced back strongly since mid-December.
“Of course, USD weakness has been a contributor NZD hasn’t risen much against some currencies. But NZD has done very well against AUD also. Our Blueprint trade to sell AUD/NZD has worked, with the cross having now fallen through our mid-year forecast of 1.07,” says Baker.
Proposals of reform for the RBNZ, a ban on the foreign acquisition of existing residential property and a crackdown on migration were at the heart of initial market concerns. But while the Labour government has pushed ahead on almost all of these fronts, the economic fallout thus far has been limited to a decline in business confidence.
“As today’s retail sales data show, NZ consumers are in good shape, in contrast to Australia where consumer sentiment is the worst in G10. And next week brings the return of the closely watched ANZ business survey, which may follow the PMI and rebound from low levels,” Baker adds.
Baker and the Deutsche Bank team have been selling the AUD/NZD rate in 2018 and, after a -2.58% fall in the exchange rate during the first six weeks of the year, are taking profits off of the table.