NZ Q1 GDP preview and what it means for NZD/USD

Three weeks have passed since the RBNZ’s hawkish shift that propelled the NZDUSD briefly above .7300c and caused a sharp spike higher in NZ yields.


Since that point, NZ yields have retraced most of their post RBNZ gains in line with the decline in offshore yields and reflecting a preference for short bond positions amongst domestic traders.

In FX, the NZDUSD is has fallen almost 3% from its post RBNZ high and appears vulnerable ahead of tomorrow morning's FOMC and the release of NZ Q1 GDP data at 8.45 am AEST.

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My colleague Matt Weller has provided an excellent preview of what's expected from the FOMC here. Hence in this article, I will focus on what is expected from the NZ GDP data.

NZ GDP surprisingly contracted by -1.0% q/q in the final quarter of 2020, disappointing market expectations for a modest rise.

Since that point the economic recovery has found a firmer footing and the market is looking for a rise of 0.5% q/q tomorrow against the RBNZ’s forecast of -0.6%, factored into the RBNZ’s May policy statement.

Driving the recovery in Q1 2021, solid household consumption, neatly illustrated by a 6.8% increase in retail spending over the past two months, residential construction, fixed asset investment as well as record prices for key commodity exports, including dairy.

Offsetting the potential for a stronger number, the absence of international tourists remains a drag on the tourism and hospitality sectors. While businesses report that it is becoming increasingly difficult to source labour, a situation that is expected to persist as long as international borders remain closed.

Distortions in the labour market are the most serious challenge to the RBNZ’s reintroduced OCR track that showed a full hike by Q3 2022 and a total of 150bp of hikes by mid-2024.

Nonetheless, as the RBNZ has signalled rate hikes against a backdrop of a dovish Fed and providing the NZDUSD holds the bottom of its recent .7100c -.7300c range, a positive bias remains in place for the NZDUSD looking for a retest and break of the recent .7316 high.

Aware that should the NZDUSD see a sustained break and daily close below range lows at .7100c, it will likely see the NZDUSD undertake a deeper pullback towards support at .7000/.6950c.

NZ Q1 GDP preview and what it means for NZDUSD

Source Tradingview. The figures stated areas of the 16th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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