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New Zealand Dollar Looks to 4Q GDP, FOMC Outcome for Direction

New Zealand Dollar Looks to 4Q GDP, FOMC Outcome for Direction

Ilya Spivak, Head Strategist, APAC
New Zealand Dollar Looks to 4Q GDP, FOMC Outcome for Direction

Fundamental Forecast for the New Zealand Dollar: Neutral

  • New Zealand Dollar May Fall if Weak 4Q GDP Fuels RBNZ Rate Cut Bets
  • FOMC Meeting Outcome to Influence NZ Dollar via Risk Sentiment Trends
  • Identify Key Turning Points for the New Zealand Dollar with DailyFX SSI

The New Zealand Dollar managed to find support against its US counterpart after the RBNZ signaled it was in no hurry to cut interest rates at its monetary policy meeting. Governor Graeme Wheeler highlighted a range of factors underpinning strong economic growth and dismissed soft inflation readings in the near term as largely reflective of the transitory impact of oil prices. Speaking directly to the benchmark lending rate, Wheeler projected “a period of stability” ahead.

Still, the familiar refrainwarning that “future interest rate adjustments, either up or down, will depend on the emerging flow of economic data” was repeated. This makes for a news-sensitive environment going forward as markets attempt to divine the central bank’s likely trajectory alongside policymakers themselves. With that in mind, all eyes will be on the fourth-quarter GDP data set in the week ahead.

Output is expected to increase by 0.8 percent, an outcome in line with the trend average. On balance, that means a print in line with expectations is unlikely to drive a meaningful re-pricing of policy bets and thereby have little impact on the Kiwi. New Zealand economic data outcomes have increasingly underperformed relative to consensus forecast since January however. That suggests analysts are over-estimating the economy’s momentum, opening the door for a downside surprise. In this scenario, building interest rate hike speculation may push the currency downward.

The external landscape is likewise a factor. A significant correlation between NZDUSD and the S&P 500 (0.52 on 20-day percent change studies) hints the currency is sensitive to broad-based sentiment trends. That will come into play as the Federal Reserve delivers the outcome of the FOMC policy meeting, this time accompanying the statement with an updated set of economic forecasts and a press conference from Chair Janet Yellen. Fed tightening fears have proven to be a potent catalyst for risk aversion since the beginning of the month. That means a hawkish tone is likely to sink the Kiwi, while a dovish one may offer the currency a lift.

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

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