Asia-Pacific: The Week Ahead (Sept 16-20), New Zealand – Trudging Slowly Over Low Growth

Market participants in the week ahead will receive further insights into New Zealand’s economy, including updates on the country’s housing sector, consumer confidence and gross domestic product (GDP).

New Zealand has generally been suffering from the recent deterioration in global economic activity, which has hampered demand for the nation’s goods and services.

Reserve Bank of New Zealand (RBNZ) governor Adrian Orr said that heightened “uncertainty and declining international trade have contributed to lower trading-partner growth.” In turn, this has led to the slowing domestic growth in the country over the past year, amid rising headwinds.

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The RBNZ at its monetary policy meeting in August elected to slash its Official Cash Rate (OCR) by 50 basis points to a record low of 1.0%, joining a chorus of central banks across the Asia-Pacific region that have been easing monetary policy in 2019, including the Bank of Korea, the Reserve Bank of India, the central banks of both Malaysia and the Philippines, as well as the Bank of Thailand and Bank Indonesia.

New Zealand’s central bank said it expects its monetary stimulus to spur growth from late 2019. Also, market interest rates have declined since the start of this year, which supports both consumption and investment, and has helped keep the New Zealand dollar exchange rate lower.

In the RBNZ Survey of Expectations for the three months to September 2019, while businesses generally anticipated the New Zealand dollar and U.S. dollar exchange would dip from 0.671 in mid-July 2019 to 0.66 at the end of December 2019 and at the end of June 2020, the pair stood at around 0.64 intraday Wednesday, according to the IBKR Trader Workstation.

In the Q1’19 survey, NZD/USD was expected to fall from 0.677 in late January to 0.67 at the end of June 2019, and 0.66 at the end of December 2019.

Credit Profile

Moody’s Investors Service, which has assigned its pristine ‘Aaa’ sovereign credit rating on New Zealand, recently noted that the country’s “very strong” credit profile enables it to “mitigate external and domestic vulnerabilities related to the economy’s high reliance on external financing and its elevated level of household debt.”

Market participants’ perceptions of the nation’s creditworthiness has generally remained stable, with spreads on its five-year credit default swaps (CDS) roughly 2.0 bps tighter over the past three months.

Moody’s analyst Matthew Circosta said while “the potential for further trade-restrictive policies around the world remains a threat to export growth,” that relatively “inelastic global demand for the country’s food exports, in particular, high-quality dairy products, mitigates this risk relative to other Asia-Pacific economies.”

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The author does not hold any positions in the financial instruments referenced in the materials provided.

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