NZ Economy Performs Better than RBNZ Assumes NZD Strength Remains a Concern for RBNZ AUD /NZD the Preferred Play for RBNZ Meeting NZ Economy Performs Better than RBNZ Assumes
Next week will see the RBNZ deliver its first monetary policy announcement of the year, where expectations are for the central bank to stand pat on current monetary policy. However, in light of the recent run of stronger than expected economic data, the focus will be on the RBNZ's updated forecasts as well as Governor Or's presser.
At the last meeting, the RBNZ provided a hawkish surprise given that the NZ economy had performed significantly better than the central bank's pessimistic forecasts, which in turn saw a sharp re-pricing of negative rates in the front end of the curve and subsequently prompted a sizeable bid in the Kiwi . Since the November meeting, it appears as if the RBNZ has once again underestimated the recovery in the NZ economy as domestic data has outperformed the RBNZ's forecasts. Q4 CPI printed 0.3ppts higher than the RBNZ had assumed at 0.5% Q/Q and 1.4% Y/Y, the bounce back in Q3 growth had been firmer than expected at 14% (vs 13.4%) and the unemployment rate saw a sizeable drop to 4.9%, which had been 0.7ppts below the RBNZ's estimate.