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Soft 4Q New Zealand GDP to Tame Post-FOMC NZD/USD Rebound

Soft 4Q New Zealand GDP to Tame Post-FOMC NZD/USD Rebound

David Song, Strategist

- New Zealand GDP to Expand Annualized 3.2%- Slowest Since 1Q 2016.

- Will the Reserve Bank of New Zealand (RBNZ) Continue to Endorse a Wait-and-See Approach in March?

For more updates, sign up for David's e-mail distribution list.

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

New Zealand’s 4Q Gross Domestic Product (GDP) report may undermine the near-term rebound in the NZD/USD exchange rate as the growth is projected to increase an annualized 3.2% after expanding 3.5% during the three-months through September.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Signs of a slowing economy may prompt the Reserve Bank of New Zealand (RBNZ) to adopt a more cautious tone at the next policy meeting on March 23, and Governor Graeme Wheeler may look to further support the real economy before his departure in September as officials warn ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.’ However, the RBNZ appears to be in no rush to adjust the current stance, and the central bank may continue to endorse a wait-and-see approach for monetary policy as ‘inflation is expected to return to the midpoint of the target band gradually, reflecting the strength of the domestic economy.’ In turn, the fresh remarks from Governor Wheeler and Co. may keep the New Zealand dollar afloat should the central bank show a greater willingness to gradually move away from its easing-cycle.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Inflation (QoQ) (4Q)

1.0%

0.6%

Building Permits (MoM) (DEC)

--

-7.2%

Average Hourly Earnings (QoQ) (4Q)

0.6%

-0.3%

Subdued wage growth paired with the slowdown in household consumption may generate a lackluster GDP report, and a marked slowdown in economic activity may drag on the kiwi-dollar exchange rate as it encourages speculation for additional monetary support.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Terms of Trade Index (QoQ) (4Q)

4.0%

5.7%

Money Supply M3 (YoY) (DEC)

--

6.4%

Credit Card Spending (YoY) (DEC)

--

8.5%

Nevertheless, the improvement in the terms of trade accompanied by the ongoing expansion in private-sector lending may spur a better-than-expected GDP print, and an unexpected pickup in economic activity may trigger a bullish reaction in the New Zealand dollar as it boosts interest-rate expectations.

How To Trade This Event Risk(Video)

Bearish NZD Trade: Growth Rate Slows to Annualized 3.2% or Lower

  • Need a red, five-minute candle following the release to consider a short NZD/USD position.
  • If market reaction favors a bearish kiwi trade, sell NZD/USD with two separate position.
  • Set stop at the near-by swing high/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.

Bullish NZD Trade: New Zealand GDP Exceeds Market Forecasts

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

If you’re looking for trading ideas, check out our Trading Guides

Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD may stage a larger rebound following the Federal Open Market Committee (FOMC) interest rate decision as the pair fails to test the December low (0.6862), while the Relative Strength Index (RSI) threatens he bearish formation carried over from the previous month; need a break/close above the Fibonacci overlap around 0.7040 (505% retracement) to 0.7060 (38.2% retracement) to open up the next topside region of interest around 0.7100 (38.2% expansion) to 0.7120 (50% retracement).
  • Interim Resistance: 0.7520 (50% retracement) to 0.7530 (78.6% retracement)
  • Interim Support: 0.6840 (38.2% retracement) to 0.6870 (50% retracement)

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

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)

3Q

2016

12/21/2016 21:45 GMT

3.6%

3.5%

+9

+6

3Q 2016 New Zealand Gross Domestic Product (GDP)

NZD/USD 15-Minute

NZD/USD Chart

New Zealand grew an annualized 3.5% during the three-months through September, while the 2Q reading was adjusted reflect a 3.4% rate of growth versus an initial print of 3.6%. The expansion was largely led by a 2.1% pickup in building activity, with private-sector consumption also climbing 1.6%, while farm outputs narrowed 1.6% during the same period. The series of mixed data prints sparked a lackluster reaction, with NZD/USD largely consolidating throughout the day as the pair closed at 0.6903.

Read More:

Technical Weekly: USD/JPY 115.50-116.00 is a Clear Trading Barrier

S&P 500 Pulls Back to Support and Holds; Rip to New Highs or Consolidation Next?

What To Watch On The Breakdown In Oil & Gold As DXY Accelerates

PBOC, Fed Remain Key Drivers to Yuan

--- 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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