New Zealand Dollar Firm After Trade Beat, Eyes RBNZ Mandate Change
- New Zealand’s February trade balance beat expectations despite misses for both imports and exports
- Incoming governor Adrian Orr took his place at the RBNZ’s helm
- The RBNZ officially accepted a dual policy mandate and will now consider maximum sustainable employment as well as inflation
The New Zealand Dollar didn’t get much of a lift from news of a surprise trade surplus in its homeland Monday, possibly because its central bank announced a change to its mandate which could keep interest rates lower for longer.
February’s overall surplus came in at NZ$217 million (US$153 million), against expectations of a NZ$ 100 million trade deficit. Within that both imports and exports rose by less than expected however, with the import miss perhaps likely to raise some questions about the underlying strength of the New Zealand economy despite some positive indications elsewhere.
Still, these latest figures do represent a bounce back from January’s deep deficit and it is perhaps surprising that the New Zealand Dollar failed to gain more strongly on them.
One reason might emanate from the direction of the Reserve Bank of New Zealand. Monday is the day when new Governor Adrian Orr takes over as Governor. His appointment was announced in December. However, the RBNZ also said on Monday that it had accepted a new dual monetary policy mandate.
Whereas before price stability was the RBNZ’s primary goal, it will now have to officially consider maximum, sustainable employment as a policy outcome too. This possibility was well known to the markets as New Zealand’s new government had made no secret of its intention to change the mandate since its election last year.
The most likely outcome of the change is probably that the RBNZ will now err on the side of keeping rates lower than it might have done in the days when it had a single policy target. With interest rates already at record lows, and inflation torpid, the mandate’s introduction may see the kiwi struggle, although markets have had some time to get used to it.
Indeed, this prospect is probably part of the reason behind NZD/USD’s gradual 2018 decline on its daily chart, which remains the dominant feature of trading.
At present the pair remains in the middle of the band formed by that downtrend channel, and is currently finding support at the highs of early January.
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--- Written by David Cottle, DailyFX Research
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