New Zealand's retail sales volumes unexpectedly declined in the second quarter, with total retail sales volume dropping by -0.5% quarter-on-quarter, compared to market expectations of a 0.2% increase and a 1.0% rise in the previous quarter [1]. The decline was primarily driven by weakness in fuel, motor vehicle, and parts retailing categories [1]. However, when excluding these volatile components, core retail sales volume actually increased by 0.7% quarter-on-quarter, though this was still lower than the 1.1% growth seen in the first quarter, indicating that domestic demand remains resilient [1].
Despite the retail slump, markets have virtually fully priced in a 25 basis point hike by the Reserve Bank of New Zealand (RBNZ) at its upcoming policy decision on September 2, which would bring the policy rate to 2.75% [1]. Furthermore, the swaps curve suggests a total of 75 basis points of tightening over the next twelve months, implying a policy rate of 3.25% [1]. This expectation is considered reasonable given that inflation remains above target and the current policy rate is near the lower end of the RBNZ’s estimated neutral range of 2.20% to 4.10% [1].
Despite the anticipated tightening, analysts at Brown Brothers Harriman (BBH) believe that upside for the New Zealand dollar (NZD/USD) is limited, as the currency pair has already moved ahead of rate differentials [1]. No specific market reaction or analyst opinions beyond these points were provided in the source article.
CONCLUSION
New Zealand's retail sales data showed a surprise decline, but markets remain confident in further RBNZ rate hikes. While domestic demand appears resilient, analysts see limited upside for NZD/USD as rate expectations are already priced in.