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New Zealand Dollar Steadies but Economy Seen Slowing for Third-quarter

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Wednesday’s data comes closely on the heels of November trade figures and the latest auction of milk powder.

The New Zealand Dollar gained over its lower-yielding rivals Wednesday and slipped lower against the Dollar bloc, as markets positioned for the release of the third-quarter GDP and responded to the latest swings in commodity prices.

New Zealand’s third quarter GDP number is expected to show the economy growing by 0.6% when it is released by Statistics New Zealand at 21:45 London time, according to the consensus among economists, a slower pace than the 0.8% recorded in the previous quarter.

“We expect there to have been a modest 0.5% q/q increase in New Zealand’s Q3 GDP as the boost to growth from the Lions rugby tour fades,” says Paul Dales, an economist at Capital Economics.

“Such a rise would result in the annual growth rate slowing to 2.3% and that slowdown may look sharper if, as NZ Stats has suggested, GDP in previous years is revised up.”

The New Zealand Dollar was quoted 0.22% higher at 0.6984 against the greenback around the London close Wednesday while the Pound-to-New-Zealand-Dollar rate was marked 0.15% lower at 1.9174.

Wednesday’s data comes closely on the heels of November trade figures and the latest auction of milk powder.

The auction saw a surprise fall in the price of whole milk powder, which were down 2.5%, when the futures market had implied a 4% price increase was likely. Lower prices helped contribute to broad Kiwi Dollar weakness during the morning session in London Wednesday.

“However, outside of dairy commodity prices are buoyant (that's 3/4 of exports) and the jump in capital imports in Nov (aircraft and its parts, cars, computers, and diggers) will find its way into consumption and business investment. So weak headlines but stronger underbelly,” says Christian Maggio, head of emerging market strategy at TD Securities.

The NZ trade balance widened to -$1.19 billion, from $-834 million in October, when consensus had pencilled in a fall to $-495 million. The current account deficit also widened markedly, although this was in line with expectations.

“NZD/USD remains in upward correction mode, targeting the 0.7050-0.7100 area next. Our rationale for the rise includes NZD/USD’s undervaluation, plus speculators’ extreme short positioning,” says Imre Speizer, a foreign exchange strategist at Westpac.

Recent data comes amid a shakeup in New Zealand politics, with the Labour-led coalition getting to work on its policy agenda after having emerged victorious from negotiations that followed the September election.

Prime Minister Jacinda Ardern’s maiden budget was poorly received by the market last week after revenue and borrowing assumptions that underpinned the maths behind public spending plans were questioned by observers.

That said, the budget was heavy on fiscal stimulus, particularly around social spending, infrastructure and housing. This could bode well for the Kiwi economy in the quarters ahead.

Meanwhile, the government has snared itself a new governor for the Reserve Bank of New Zealand in the form of NZ Super Fund CEO Adrian Orr, who will take the helm at the bank on March, 27.

His appointment comes amid a review of the central bank’s mandate that is likely to see an full-employment mandate incorporated alongside its current inflation mandate.

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