New Zealand Dollar Support May Continue With Strong GDP Report
New Zealand’s Performance of Services Index climbed to 53.7 in February from 53.1 the month prior, led by increases in new orders and sales. The service sector accounts for two thirds of the economy, and continued expansion could help fuel a third straight quarter of improving growth. A weak employment component may signal that a jobless recovery is underway, which could lead to the central bank remaining on hold beyond June. Policy makers have pledged to keep rates at 2.50% until the second half of the year but forecasts that the economy grew by 0.8% has markets starting to price in a mid-year rate hike.
Strong growth figures should help extend the “kiwi’s gains, unless we see broader risk aversion grow, which is a strong possibility with the Greek tragedy continuing to play out. The current account for the same period is released a day before and will provide evidence of export demand which is expected to be a driver of growth for the period. An improvement in demand from abroad could lead spark a New Zealand dollar rally, as it would support the outlook for improved growth. However, support could be limited if the February trade balance report reflects a drop off in demand for exports fueling concerns that dissipating government stimulus is slowing the global recovery.- JR
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