New Zealand dollar fell markedly on Thursday, following poor gross domestic product (GDP) data release, soon after the boost from the Federal Open Market Committee (FOMC) statement, weakening its US counterpart.
As Statistics of New Zealand reported, GDP of the country rose in the slowest pace in two years, mostly hit by mining sector and agriculture, large contributor to economy’s performance. GDP of New Zealand rose only 0.2% during the first quarter, much below expectations of most banks and brokers. Even Q4 2014 saw downward revision to 0.7% from previous 0.8%. On an annual basis, New Zealand saw 2.6% increase, much lower as 3.5% in Q4 2014.
Mining sector saw its production lowered markedly by 7.8%, reflecting by oil & gas industry plunge in prices, while agriculture, being a relevant factor in dairy-oriented economy, saw a decline of 2.3%. Although the rest of sectors could see some improvement, these two major sector could not be offset significantly, ending in poor first quarter results.
All these factors contribute to actual poorer sentiment on the New Zealand dollar, adding to worries on further rate-cut, more likely after such disappointment.
Nevertheless, we could see even worse performance of New Zealand dollar if the greenback did not suffer from the FOMC economic projections.
Although the statement’s sentiment was not seen as that disappointing, downward GDP revision due to poor Q1 2015 for this year saw a decrease to 1.8%-2.0% range from previous 2.3%-2.7%, while the labor market, albeit supported by the Federal Reserve’s Chair Janet Yellen’s speech, saw the unemployment rate outlook for 2015 lifted to 5.2%-5.3% from previous 5.0%-5.2%.
From the fundamental point of view, the New Zealand dollar’s strength eased somewhat due to a major turn in central bank’s policy as the economy is not performing according to previous expectations and previous speculation (from 2014) counting on another rate-hikes have faded away and ask for more easing of monetary policy now.
Although the dollar has seen some selloff after the FOMC statement, September remains in the game for tightening and GDP revision has been already expected, so no extraordinary news delivered from Fed on Wednesday. From now, we can expect the bearish trend on New Zealand dollar to get new boost and from a long-term perspective we expect the so-called kiwi to drop further to $0.6500.
From the technical point of view, we can see New Zealand dollar correcting slightly, mostly due to greenback’s selloff, with resistance being set at $0.6994 (or close to psychological $0.70 level) or later at $0.7142, albeit this level is not much expected to be reached under current circumstances.
As for the bearish trend, we expect the kiwi to drop to $0.6853 or even further (more expected in mid-term) to $0.6671.
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