A glimpse over Kiwis exports ahead of RBNZ’s monetary policy

Kiwi dollar has been gaining traction ahead of following data announcements.

NZD IVs have been bolstering above 12.8% owing to this week’s flurry of data streaks, GDT price index on Tuesday, RBNZ’s monetary policy that’s been scheduled for this Wednesday, and Chinese trade balance on Thursday.

Export prices: +40bp

World dairy prices rose sharply ahead of the November Monetary Policy Statement, and have risen modestly further since then. The RBNZ did not incorporate the rise in prices in its November forecasts but acknowledged that the longer those dairy prices remained at these levels, the more it would have to factor them into its forecasts.

The estimation assumes that the RBNZ would now approve a forecast similar to our own, which incorporates a modest pullback in prices this year. This one is particularly hard to quantify, as it rests on a judgment about existing information, rather than on new information.

Exchange rate: -20bp

The trade-weighted index is tracking around 4% above what the November MPS assumed for this quarter. About half of this can be justified by the modest rise in export commodity prices since November, but the other half would be considered a ‘portfolio effect’ that is not based on fundamentals.

While Kiwis trade deficit decreased 1.3 pct year-on-year to NZD 41 million in December of 2016. Exports declined 0.9 pct to NZD 4.4 billion, led by meat and edible offal (-16 pct) while milk powder, butter, and cheese raised 8 pct. Imports fell 0.9 pct to NZD 4.4 billion.