New Zealand Dollar Climbs as 4Q GDP Beats Expectations

Talking Points:

• NZD/USD rallies after better-than-expected New Zealand GDP data crossed the wires
• The economy expanded 0.9% on the quarter and 2.3% year-over-year in the 4Q
• Currently, low inflation is the RBNZ’s top concern for easing

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The New Zealand Dollar gained against its US peer after New Zealand fourth quarter GDP crossed the wires. The country’s economy grew 0.9 percent (QoQ) and at a 2.3 percent pace (YoY) in the fourth quarter of 2015. The data beat the 0.7 percent (QoQ) and 2.1 percent (YoY) economists’ estimates respectively. Domestic growth also expanded at the same pace as in the third quarter.

In the aftermath of the announcement, New Zealand front-end government bond yields were unchanged. This suggests that the data did not alter near-term expectations for an RBNZ rate cut. Overnight index swaps are pricing in at least one Reserve Bank of New Zealand rate cut over the next 12 months.

In its most recent monetary policy announcement, the central bank noted that the strength of New Zealand’s economy would likely continue into the last quarter of 2015. Today’s Gross Domestic Product percentages were in line with the RBNZ’s rhetoric concerning domestic growth. While the Reserve Bank of New Zealand does have a data-dependent approach to monetary policy, low inflation remains its top concern for determining future policy.