Recession but no worse than feared
It is now official: the NZ economy was in recession first half 2008. We probably still are. But this is no surprise and simply confirms the RBNZ assumptions. The RBNZ are showing a keenness to ease and have signaled another 0.5% OCR cut over the next 12 months, probably sooner rather than later.
Speculation that the cuts will come early will mount as we approach the 23 October OCR Review, and hence local forces on the NZ dollar around mid October will probably be downward.
Before then, though, the local news of late has tended to be a little more positive, a sentiment that will probably come through in the widely-watched 7 October Quarterly Business Opinion Survey. Even the lower dairy farmer payout is offset to some extent by the higher meat prices of late. And a good growing season would go someway to offsetting the lower dairy prices.
Internationally the forces are very mixed, suggestive of a wide-ranging but broadly sideways trading USD for the next few months. Near-term direction will depend on the specifics of the bailout package.
Put the two forces together and selling the NZD on any rallies still appeals.
