This week we saw the Kiwi surge up to a new 5-week high amid a softer dollar and positive economic data coming out of New Zealand. This showed signs of strength in the country’s local economy. Economic data from this past week (31 October -4 November 2016) were the last prior to next week’s Monetary Policy Statement.
Global Dairy Trade Price Index
We saw a 11.4% climb at last month’s Global Dairy Trade auction. This was mainly due to a drop in volumes of milk powder. Some 27,735 tonnes of product was sold, down from 31,525 tonnes at the previous auction. It resulted to an almost 20% rise in milk powder prices from $2.965/tonne to $3.327/tonne. This somehow further boosts optimism in the rural sector. It will encourage farmers to increase production by adjusting feed as it is simply too late to be increasing stock numbers.
Inflation has been below the RBNZ’s 1-3% target band for two years straight now, and it has been a close call as to whether it will return to within the band by the end of the year. With Wednesday data coming just above expectations, as it increased from 1.65% to 1.68%. Generally, the shortfall has been due to some unavoidable factors, the most prominent being the steep fall in oil prices. In this regard, further Monetary Policy easing is required to ensure that future inflation settles at least near the middle of the target range.
New Zealand’s Labor Market continued to strengthen in the third quarter. This week’s data even came stronger than what was expected. The unemployment rate fell to 4.9% for the first time since 2008 as it has either been 5% or just above. This was almost entirely led by part time growth. Employment grew 1.4% in the last quarter. There were indications that the labor market continued to strengthen during the third quarter. Even though a slow down of 0.8% was seen, a fourth consecutive employment growth increase is expected.The participation rate rose to an all-time high of 70.1%. The strengthening labor market continues to entice more people into the work force. This simply suggested that the market is clearly tightening even though it is not having an impact on nominal wages as of yet.
Labor Cost Index
The data was a little stronger than what was expected. However, there are little concerns about the lack of wage growth and the impact of this on the inflation outlook. It is not expected to remain the case forever as inflation is expected to make a long awaited return to the RBNZ’s target band.
For a weekly US Dollar week review, check out Ryan’s post on the dollar here