The economy in New Zealand continued growing, but at a lower pace than expected, and not for the first time. In Q2, the economy grew +0.4% against +0.6% expected. Also on an annual basis, the economy advanced by 2.4% instead of 2.5% predicted.
NZD/USD dropped in the immediate aftermath, but is basically maintaining its range towards the all important Fed decision. Is it vulnerable.
This is another blow for the economy, following a weak growth rate of 0.2% in Q1, mediocre employment numbers and sub par CPI. It also cements another rate cut in the RBNZ October meeting, and implies further cuts.
However, the fall of the kiwi was limited, within the 0.6330 to 0.6380 range and it bounced back. It seems that the pair does not fully price in the disappointing figure.
This can easily be explained by the bigger event coming up: the Federal Reserve meeting, with the open question about the interest rate. Will they hike or not?
Among our 4 Fed scenarios, our leading ones are a “dovish hike” or a no hike but with a hawkish tone. Even if the Fed does not hike, the US dollar could rise against some currencies.
And the kiwi could be the weakest link, with traders lined up to sell the NZD once the Fed news is in and it doesn’t go all dovish.
What do you think?
Here is the NZD/USD chart:
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