New Zealand Dollar Dips on Soft GDP Data. Where to for NZD/USD?

New Zealand Dollar, NZD/USD, US Dollar RBNZ, FOMC, Fed, Powell, NZX50 Index – Talking Points

• The New Zealand Dollar lost ground after GDP data disappointed
• Growth for the first quarter met expectations but there were some downward revisions
• The RBNZ might sit on policy, but the Fed may move again. Will that hit NZD/USD?

The New Zealand Dollar fell in response to GDP today after a stellar run higher on the back of a sliding US Dollar. The S&P/NZX 50 equity index is slightly in the green so far today.

The quarterly number was in line with expectations, but the annual read saw some downward revisions.

1Q quarter-on-quarter GDP came in at -0.1% as forecast and against the previous -0.7% that was revised down from -0.6%. Prior quarters also saw downward revisions.

Annual GDP to the end of March was 2.2% rather than the 2.6% anticipated and 2.2% previuosly.

Prior to the GDP data, the real estate institute of New Zealand (REINZ) revealed that house sales slipped -0.4% year-on-year to the end of May. A notable improvement on the April figure of -15. 3%.

Yesterday, Statistics New Zealand data revealed food prices rose by 0.3% month-on-month in May against 0.5% previously. This made for an increase of 12.1% year-on-year to the end of May, slightly below the prior of 12.5% which was the highest read in 36 years.

Earlier in the week, Statistics New Zealand also revealed that there were net 72,300 migrant arrivals in the year ended in April. This was composed of 98,400 migrant arrivals of non-NZ citizens and 26,100 migrant departures of NZ citizens.

The addition might go some way to alleviate the tight labour reflected by the historically low unemployment rate of 3.4%.

All of this stacks up for a delicate dance that the RBNZ will need to trot in order to avoid a recession when they next meet on July 12th.

Annual CPI is running at 6.7% and while there has been a deceleration, it is stubbornly high at a time when economic activity is slowing down. The overnight index swaps (OIS) market is pricing no more hikes by the bank this year, leaving the overnight cash rate (OCR) at 5.50%.

For the New Zealand, Dollar, sways in the US Dollar might continue to impact direction, judging by the reaction to last night’s Federal Open Market Committee (FOMC) meeting.

The Fed left rates unchanged, and the ensuing statement appears to have been interpreted as remaining hawkish with a lift in the so-called dot plot. Not long after, Fed Chair Jerome Powell spoke at the press conference and his remarks seem to have been seen with a dovish spin.

The next FOMC is July 26th and there is a mountain of data points between now and then that the market will need to take onboard, as well as Fed commentary along the way.

NZD/USD REACTION TO THE FED DECISION AND NZ GDP

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter