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NZD Extends Selloff on GDP Miss

NZD Extends Selloff on GDP Miss

2018-12-19 22:31:00
Rich Dvorak, Analyst
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Talking Points:

  • NZDUSD decline exacerbated on 3Q GDP miss
  • Risk off sentiment may continue sapping Kiwi demand

New Zealand just reported 3Q2018 GDP of 0.3 percent, widely missing estimates of 0.6 percent. Year over year economic growth notched a less dismal rate of 2.6 percent, but still came in lower than 2.8 percent expected. Although the miss disappoints, it may not come as big a shock after seeing the large dip in the country’s current account balance, not to mention that neighboring Australia recently published its own GDP report which also missed badly. Additionally, GDP weakness in the reported period may be due a hangover from the strong performance experienced in the quarter prior, notching 1.0 percent growth with the year over year reading at 3.2 percent.

Economic data out of New Zealand should continue having a greater impact on Kiwi demand. This is largely due to the fading attractiveness the relatively high yielding, pristine credit rated currency offers in popular carry trades. As a result, economic progress over subsequent months will largely dictate NZDUSD currency performance. Slowing GDP may force the Royal Bank of New Zealand’s Governor Adrian Orr to lower the country’s interest rate from its current level of 1.75 percent which posing a major threat to NZD upside.

NZDUSD currency performance today has largely been dictated by the Federal Reserve’s FOMC policy decision earlier and is most likely still impacting the forex pair’s sentiment with New Zealand’s GDP miss exacerbating the selloff.

NZDUSD Price Chart (1-Minute Bars)

NZDUSD Price Chart (1-Minute Bars)

Take a look at IG’s real-time Client Sentiment tracker to see the bullish and bearish biases of traders.

Looking ahead, New Zealand Credit Card Spending for November will be released tomorrow at 2:00 GMT providing a health check on consumer demand. Furthermore, trade talk progression between China and the United States will likely impact NZD performance given the sentiment focused nature of currency. New Zealand’s trade with its Chinese neighbor accounts for roughly 20 percent of the country’s imports and exports. Consequently, any positive development towards trade war de-escalation should help boost the domestic economy and provide support to the Kiwi.

--Written by Rich Dvorak, Junior Analyst for DailyFX

--Follow on Twitter @RichDvorakFX

--Check out our Education Center for more information on currency forecast and trading guides.

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