The latest retail sales out of New Zealand surprised to the upside coming in at 2.5% versus -1.6% previous. By industry, the main movements were: electrical and electronic goods, up 8.4 percent. Recreational goods, up 16 percent. Hardware, building, and garden supplies, up 4.5 percent. Department stores, up 5.6 percent.

The AUD by contrast is currently pressured alongside falling Iron ore prices. If these prices keep falling then AUD will face weakness. The Australian economy exports large amounts of Iron ore, so its price impacts the AUD. Also, the RBA is trying to target very low unemployment levels and looks unlikely to reach these levels of around 4% (currently 5.5%) until 2024.

The bond yield spread between the AU10 y and NZ 10 y has been falling and this should mean AUDNZD selling ahead. Therefore, there is a near term selling bias ahead of the RBNZ rate meeting.

Key Trade Risks:

• If Iron Ore prices move a lot higher that will invalidate this outlook
• If the RBNZ are more dovish than the RBA this will invalidate the outlook.