NZD/USD – Better than expected GDP not indication of future health

New Zealand’s Q4 GDP exceeded expectations. Y/Y figures came in at 3.0% vs 2.3% expected, while Q/Q is also higher: 1.5% vs 0.9% expected. Both figures are also higher compared to previous quarter of 2.0% and 0.2% respectively. This increase eased the tension brought about by the ongoing drought, and brought bullish relief to the Kiwi dollar. Nonetheless, long term concerns remained. New Zealand Government has declared the whole of North Island to be in drought, and South Island conditions aren’t faring much better either. This drought is literally burning up Kiwi livestock productivity – a key contributor in NZ’s GDP.

Whole Milk Powder (May delivery) has climbed to USD 5313 a ton, 50% higher than a month ago according to Global Dairy Trade. However, the increase in price is not expected to make up for the lost in productivity, and future GDP is definitely going to be affected negatively. To complicate matter, NZD remains highly appreciated, which will make the already expensive exports even more exorbitant. As a final coffin in the nail, New Zealand’s exports has come under scrutiny in China, with false rumors going around regarding health safety. Though the rumors have been confirmed to be unfounded, local Chinese demand will still remain affected and the increase in prices will certainly not help the Chinese demand recover.

Hourly Chart


From a technical basis, NZD/USD appears to be range bound with top below 0.83 stretching all the way back to 12 Mar. The inability to break above last Friday’s high will be a concern for bulls and bears may take initiative to push price back to the pre GDP levels. Stochastic readings agrees with this outlook with readings signalling that a bear cycle is already underway. It is important to note that price was already climbing down until Chinese HSBC Flash PMI pushed price higher once more. Similarly, the better than expected Chinese data did not do one better than the GDP data, underlying the strength of bears amidst positive news.

Daily Chart


Long-term chart also suggest sideways movement with price not really moving beyond the 0.815 – 0.85 band. In the interim, 0.829 – 0.83 will act as resistance though the resistive band may stretch all the way up to 0.834, with a break higher above this level preferred for bullish acceleration scenarios. Stochastic readings suggest a move either higher or lower is possible. Current readings may be peaking with the Stoch line crossing below the Signal line, which seems to affirm the current interim resistance. However, readings also have space to grow towards Overbought regions, and would align with a break of 0.829-0.83 and potentially hitting Overbought close to the 0.834 resistance level.

With export prices rising, RBNZ may be forced into action to artificially push the Kiwi down. Even though Governor Wheeler has threatened rate cuts as a potential tools that he is not afraid to use “if necessary”, rate cuts may not and should not be the weapon of choice due to the rising housing market that is threatening to go out of control. A better way to bring down NZD may be to conduct market operations similar to what most Asian Central Banks do. Kiwi’s liquidity is not the largest, unlike its neighbor Aussie. As such, market operations may be plausible and we could still see Kiwi coming down despite RBNZ’s rate announcement staying mute.

More Links:
USD/JPY – Kuroda First Statement May Not Mean Immediate Weaker Yen
AUD/USD – HSBC Flash Manufacturing Shows China Growth Acceleration

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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu