The New Zealand dollar climbed a total of 90 basis points on the week against its US namesake on better-than-expected economic data. A spike in retail sales showed renewed signs of life in the New Zealand economy. Likewise, broad USD weakness allowed it to capitalize on the bullish news to post its third week of gains after falling to 14-month lows.
Moving forward, next week will bring important quarterly inflation data that looks to double its previous result. Expected at 1.2%, it could represent the highest rate of inflation since the third quarter of 2000. While it would unlikely boost speculation of any changes in monetary policy, it would quell remaining fears that recently slowed growth would lead the RBNZ to cut rates in 2006. Indeed, synthetic forward rates show no signs of expected rate changes in the second half of the year. Other upcoming economic news includes Visitor Arrivals for June, which could potentially show a rebound after Mays 1.3 percent drop. A heavily depreciated New Zealand should boost the attractiveness of the countrys tourist industry abroad, boosting a recently sagging industry. Regardless, NZD-denominated currency pairs could see a lull in the coming week as traders anticipate the 25ths Trade Balance report. Given New Zealands dependence on exports and ballooning Current Account deficits, analysts hope for a surge in the net balance to alleviate pressures from the repayment of foreign debts. Likewise significant, the 26th will hold the RBNZ Official Cash Rate target announcement. Though the number will almost certainly stay at 7.25%, any surprising comments from central bank president Alan Bollard could force volatile moves in the national currency.
Recent highlights in economic data include a greatly improved Retail Sales figure and a slightly better-than-expected business confidence reading. The consumer purchase number showed a 1.3 gain in monthly expenditures?the best print since a very bullish 2.0% gain in February. Likewise optimistic, the NZIER Business Opinion Survey for 2Q produced its second straight quarter of improvements. Recently upbeat data suggests that the New Zealand economy may be taking a turn for the better after the fourth quarter of 2005 saw it in a small-scale recession. We will wait and see whether future economic data confirms a solid return to growth, with sky-high commodity prices remaining a risk to the state of the economy.
