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NZD Rallies After GDP Data

Published June 21, 2019

The Kiwi Dollar opens higher this morning as better than expected GDP data released yesterday boosted the local currency. Also helping the NZD was an under pressure USD which continued to fall after yesterday morning’s FOMC statement.

NZ GDP Beats Forecasts

The New Zealand economy has grown by more than expected over the past 12 months, up 0.6% in the March quarter, with annual growth at 2.5%, vs 2.3% from the December quarter reading. The data was ahead of market expectations of 2.3% annual growth, and well ahead of Reserve Bank forecasts of 2.2%. The fact that the economy is holding up well greatly reduces the chances of a RBNZ rate cut next week, however a cut is almost fully priced in for August. The NZD responded well to the data, making ground throughout the day, and holding these gains overnight.

RBA Governor Sets Dovish Tone

RBA Governor Lowe added further weight to the likelihood of imminent rate cuts suggesting that recent data releases “do not suggest we are making any inroads into the economy’s spare capacity” and “it is not unrealistic to expect a further reduction in the cash rate”. Lowe said there was a lot of room for the economy to improve and a 0.25% cut was unlikely to do much to achieve that improvement. Markets are now pricing in a 78% of another rate cut in July, up from the 50% chance before Governor Lowe spoke yesterday, with several major banks bringing forward their chances of a rate cut to July from August.

BoE Keep Rates Steady

The British Pound only improved slightly overnight despite a broadly weaker USD. The Bank of England kept interest rates steady, and gave a relatively downbeat assessment of the economy, highlighting Brexit concerns and global trade tensions as risks to future growth.