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New Zealand Dollar Drops as GDP Data Boosts RBNZ Rate Cut Bets

New Zealand Dollar Drops as GDP Data Boosts RBNZ Rate Cut Bets

Daniel Dubrovsky, Strategist

Talking Points:

The New Zealand Dollar declined as much as 1.1 percent versus its US counterpart after New Zealand’s first quarter GDP fell below expectations. Economists were expecting the country to grow 0.6 percent (q/q) in the first quarter of 2015; actual figures came in at 0.2 percent (q/q) versus 0.7 percent in the fourth quarter of 2014. On a yearly basis, New Zealand’s economy grew 2.6 percent (y/y) in the first quarter of 2015 versus 3.1 percent expected and 3.5 percent prior.

Last week the Reserve Bank of New Zealand lowered its benchmark lending rate and signaled that further easing may be on the horizon. Today’s weaker report appeared to encourage RBNZ rate cut speculation. Indeed, New Zealand front-end government bond yields moved sharply lower in the aftermath of the GDP release, suggesting the move lower in the Kiwi was driven by a diminishing RBNZ policy outlook. In addition, the pair erased its gains made in the aftermath of the FOMC announcement which drove the US Dollar to a one-month low.

New Zealand Dollar Drops as GDP Data Boosts RBNZ Rate Cut Bets

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