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NZD/USD Rises after Upbeat GDP Report Tampers RBNZ Cut Odds

NZD/USD Rises after Upbeat GDP Report Tampers RBNZ Cut Odds

New Zealand GDP Talking Points:

  • New Zealand GDP printed at 2.3% on a year-over-year basis, meeting expectations and beating them on a quarterly basis at 0.7%
  • The Kiwi lifted as the beat in GDP lowered odds for a rate cut from the RBNZ
  • The fundamental picture going forward for the Kiwi will rely on the inflation outlook for the New Zealand economy along with the myriad of global economic data, especially those surrounding the US-China trade war

The New Zealand Dollar rose on Wednesday as Gross Domestic Product for the New Zealand economy on a yearly basis printed at 2.3%, meeting expectations of 2.3%. The upbeat print sent the Kiwi higher and could help bolster strength in coming days and propel it above a key technical level against the USD. The seasonally adjusted quarterly growth came in at 0.7%, beating expectations of 0.5%. But, the previous quarter saw a downward revision from 0.5% to 0.1%.

NZDUSD Chart

The report revealed that services growth led the strong performance from the New Zealand economy in the 3rd quarter with retail and accommodations rising 2.4%, the best growth in eight years according to Statistics New Zealand. Growth in primary industries rose 1.5% in forestry, fishing and agriculture, but mining saw a 1.1% decline. Spending on investment was flat, however construction activity in the residential sector remains at historically high levels according to the report.

NZD GDP YoY

Along with the upbeat GDP print, the New Zealand economy has seen a modesty recover in economic data through the second half of the year when compared to expectations, reflected by the Citi Economic Surprise Index rising above the zero mark this past July and currently standing at 26.20.

New Zealand Citi Economic Surprise INdex

The resulting strength in the Kiwi from the beat in GDP is likely reflected from decreased expectations for a rate cut from the Reserve Bank of New Zealand. While the RBNZ does not explicitly target GDP as a policy variable, it does aim for an inflation objective. Strong GDP prints are likely to lift inflation expectations and in turn, raise the likelihood of the RBNZ keeping rates steady and priming the Kiwi higher as a result. The current 2-year inflation forecast from the RBNZ stands at 1.8%, which falls slightly under the targeted 2 percent mid-point.

New Zealand Inflation expectations

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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

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