The shock in New Zealand’s June quarter merchandise terms of trade was that they rose 0.3%, when the market expected a 3.5% fall (and we were picking -5.1%). The composition was disinflationary, however, and queried our Q2 GDP growth estimate of 1.0%. Nevertheless, the real risk is that the market overreacts to these undertones, in seeing them as further justification for the RBNZ to go all soft at next week’s Monetary Policy Statement.
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