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Impressive 2Q New Zealand GDP Report to Fuel NZD/USD Advance

Impressive 2Q New Zealand GDP Report to Fuel NZD/USD Advance

2016-09-14 16:10:00
David Song, Strategist
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- New Zealand 2Q GDP to Expand Annualized 3.6%- Fastest Pace of Growth Since 4Q 2014.

- Will Stronger Growth Push the Reserve Bank of New Zealand (RBNZ) on Keep Rates on Hold?

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Trading the News: New Zealand Gross Domestic Product (GDP)

New Zealand’s 2Q Gross Domestic Product (GDP) report may boost the appeal of the kiwi and spark a near-term rebound in NZD/USD as the economy is projected to expand an annualized 3.6% following the 2.8% rate of growth during the first three-months of 2016.

What’s Expected:

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Why Is This Event Important:Even though the Reserve Bank of New Zealand (RBNZ) endorses a dovish outlook for monetary policy and warns ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,’ data prints pointing to a stronger recovery may encourage Governor Graeme Wheeler to preserve the current policy at the next interest rate decision on September 22 as it instills an improved outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Activity s.a. (QoQ) (2Q)

--

2.2%

Employment Change (QoQ) (2Q)

0.6%

2.4%

Retail Sales ex. Inflation (QoQ) (2Q)

1.0%

2.3%

The rebound in business outputs accompanied by the pickup in household consumption may generate a larger-than-expected expansion in the growth rate, and a positive development may spark a bullish reaction in the New Zealand dollar as market participants scale back bets for another RBNZ rate-cut.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Terms of Trade Index (QoQ) (2Q)

-1.5%

-2.1%

Trade Balance (JUN)

150M

127M

Credit Card Spending (MoM) (JUN)

--

-0.8%

However, the deterioration in the terms of trade paired with the slowdown in private-sector credit may drag on the growth rate, and a weaker-than-expected GDP print may spark near-term headwinds for kiwi as it drags on interest-rate expectations.

How To Trade This Event Risk(Video)

Bullish NZD Trade: GDP Expands Annualized 3.6% or Greater

  • Need green, five-minute candle following the data print to consider a long NZD/USD position.
  • If market reaction favors a bullish kiwi trade, buy NZD/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bearish NZD Trade: New Zealand 2Q Growth Report Disappoints

  • Need red, five-minute candle to favor a short NZD/USD trade.
  • Implement same strategy as the bullish New Zealand dollar trade, just in reverse.

Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily Chart
  • Broader outlook for NZD/USD remains constructive as price & the Relative Strength Index (RSI) preserve the bullish formations from earlier this year; failure to test the monthly low (0.7226) may encourage a more meaningful advance over the days ahead as the pair continues to carve fresh 2016 highs in the second-half of the year.
  • Key Resistance: 0.7680 (23.6% retracement) to 0.7700 (50% retracement)
  • Key Support: 0.6950 (38.2% retracement) to 0.6970 (50% retracement)

Check out the short-term technical levels that matter for NZD/USD heading into the release!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Impact that the New Zealand GDP report has had on NZD/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q

2016

06/15/2016 22:45 GMT

2.6%

2.8%

-47

-13

1Q 2016 New Zealand Gross Domestic Product (GDP)

NZD/USD Chart

Economic activity in New Zealand increased an annualized 2.8% following the 2.3% expansion during the last three-months of 2015, and signs of stronger growth may impede on the Reserve Bank of New Zealand’s (RBNZ) easing-cycle even as Governor Graeme Wheeler keeps the door open to further support the real economy. It seems as though the RBNZ will continue to endorse a dovish outlook for monetary policy as the central bank warns ‘further policy easing may be required to ensure that future average inflation settles near the middle of the target range.’ Nevertheless, the bullish reaction in the New Zealand dollar was short-lived, with NZD/USD coming off of the 0.7090 area to end the day at 0.7042.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Standing Head-and-Shoulders Above the Rest?

Risk Starts Week Lower as USD, JPY Gain Traction

DAX: Wobbles on ECB, Trend-line Comes into Focus

NZD/USD 2016 Rally at Risk Sub-7500 as Sentiment Stretches

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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