New Zealand’s Economy is Heating Up – NZD/USD Challenges

The economy in New Zealand grew by 1.1% in the first quarter of 2012. This is far better than the early expectations of a modest 0.5% growth.  

NZD/USD made a push to 0.80 on the news, but couldn’t break it so far. It continues trading in a nice uptrend channel since the beginning of June. This news raises the chances for a rate hike, although there are 3 things to watch out for.

The kiwi is enjoying a very steady rise. Uptrend support is more significant than uptrend resistance. The 0.80 line is an important psychological barrier. 0.79 provides support for now. More lines are in the NZD/USD forecast.

It is interesting to note that the this growth comes on top of an upwards revision to Q4 2011 data: from +0.3% to +0.4%.

The chances of a rate hike have risen in New Zealand following this truly impressive figure. A hike could give NZD/USD another boost, and there’s more room on the upside.

However, it’s important to note that:

1. The figure is for Q1 2012. The world was in better shape during the first quarter. This can be seen in global PMIs, US jobs and the general sentiment, which has worsened from the beginning of May.
2. China is slowing down – the most recent unofficial Chinese PMI points to further contraction in the manufacturing sector. New Zealand needs Asian demand for its economy.
3. A stronger NZD lowers the chances of a hike – the governor of the RBNZ, Alan Bollard, clearly stated in the past that he wants a weaker currency. While the central bank does not intervene directly, a higher value means lower inflation and a lower chance of a hike.

Further reading:  German Economic Sentiment Goes Negative – EUR/USD Slides