New Zealand releases its retail sales data for the fourth quarter in the upcoming Asia-pacific session. After a very strong 2.2% gain in the third quarter - helped by the 80,000 visitors who arrived in New Zealand for the rugby World Cup who contributed to several industries - the expectation is that sales will fall back down to earth at around 1.2%. That would be consistent with the gains seen in the first and second quarter.
If we compare the growth in the economy during 2011 we see that the third quarter registered a 0.8% growth rate which while much stronger than the lackluster second quarter (0.1%) was actually a bit slower than the first quarter (0.9%).
Retail Sales Impact on Growth Expectations
While the retail sector, accommodation, and restaurants had their largest quarterly increase since March 2007 it was actually the manufacturing sector's gain of 2.3% which helped contribute to the strong pace of growth in the third quarter.
With retail sales expected to cool by about half we take a look at manufacturing to try and give us an idea of how growth will shape up in the fourth quarter.
As we can see in the above graph of the manufacturing PMI, soft readings in manufacturing can actually undermine GDP.
Therefore the retail sales report carries important weight in that a figure that is worse than expected would weaken prospects for a growth rate that is close to what New Zealand experienced in the third quarter. That could cause the RBNZ to continue to hold rates steady at their low levels of 2.5%.
However, if retail sales surprise to the topside that could help the New Zealand dollar against key rivals in the Asian session. Much of the attention of currency markets will turn to the very important Euro-zone finance minister meeting during Wednesday's European session as they decide the fate of the Greek bailout.
Impact on Kiwi and AUD/NZD
The impact of the retail sales release therefore will be most apprant right after the release, and in terms of comparing the New Zealand Dollar against its high yielding rivals linked to global growth and commodity prices - the Australian Dollar and Canadian Dollar.
The AUD/NZD continues to move in favor of the Kiwi, recently bouncing down off its 21-day ema after having moved below the 200-ema and seeing a bearish crossover between the 55-ema and 21-ema's earlier in January.
That argues for a further decline in the AUD/NZD, especially as the expectations around more rate cuts from the RBA has gained steam following the RBA quarterly report and IF we see a stronger than expected release from New Zealand retail sales.
Going forward a break of the 1.2830 support and the 50% retracement of the upswing from mid-September to early December would open up further downside targets including 1.2710 which would be a 61.8% retracement of the same upswing. We should continue to follow the fundamental data from both New Zealand and Australia to see if the fundamental factors continue to favor the downside bias in this pair.
Nick Nasad is an analyst, educator, and trader; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.