We maintain a bullish bias on the New Zealand Dollar due to the recent improvements seen in the domestic economic data.
At this stage, growth is tracking around trend, inflation has returned close to target and unemployment at 4.0% points to a tight labour market.
For this reason, most market participants are expecting the RBNZ to leave rates unchanged this week, but to drop their overly dovish bias and opt for a neutral policy stance.
However, the Coronavirus does pose a potential problem for this view as some recent analysis done by Westpac Investment bank argues that the virus might have a much bigger impact on the NZ economy than previously thought.
As far as viruses go, the SARS outbreak in 2003 only caused a drop of 0.1% from New Zealand’s GDP. However, from 2003 New Zealand’s exports to China has grown to 28% which is substantially higher compared to 2003.
Thus, in terms of economic data the RBNZ has a lot to be happy about, but as far as the virus goes there is some reason for concern as well.
This week ahead video will help you prepare for this week’s upcoming event and provide insights into how you could possibly trade it as well.
Highlights of the video:
01:44 – Baseline context for the NZD
03:53 – Baseline expectations for the upcoming risk event
06:57 – Possible sentiment shifts
09:39 – Possible currency pairs to consider