Brown Brothers Harriman’s (BBH) Elias Haddad notes NZD/USD is firm just below 0.6000 after stronger-than-expected New Zealand Q4 retail sales volumes, driven by discretionary spending. Despite this, the RBNZ is seen in no rush to normalize rates given significant spare capacity and a negative output gap. Markets price a 25 bps hike by year-end, while the RBNZ projects steady rates.

Spare capacity keeps RBNZ cautious

"NZD/USD is firm, just under 0.6000. New Zealand retail sales volume growth overshot expectations in Q4."

"Total retail sales volume increased 0.9% q/q (consensus: 0.6%) vs. 1.9% in Q3, driven by spending on discretionary items."

"Nevertheless, the RBNZ is in no rush to normalize rates because there is still significant spare capacity in the economy."

"As such, the scope for RBNZ rate hike repricing in favor of NZD is limited. The swaps curve price in a 25bps rate hike to 2.50% by year-end while the RBNZ projects steady rates at 2.25% through late 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)