AUD/USD and NZD/USD Fundamental Daily Forecast – Reaction to NZ Quarterly GDP Sets the Early Tone for Kiwi

The New Zealand Dollar is trading higher late Wednesday while hovering just under a multi-year high reached earlier today. The price action suggests tentative buyers are attempting to prop up prices ahead of Thursday’s quarterly GDP report.

Traders showed a limited reaction to potentially bullish news out of the United States. The first was the apparent progress in U.S. fiscal stimulus negotiations. The second was the Federal Reserve’s latest pledge to support the economy.

Both developments should have been bearish for the U.S. Dollar, while driving the New Zealand Dollar higher. However, the price action suggests the news may have already been priced into the market, which makes the Kiwi vulnerable to a “buy the rumor, sell the fact” situation. This also makes the Kiwi vulnerable to a potentially bearish closing price reversal top chart pattern.

At 21:27 GMT, the NZD/USD is trading .7100, up 0.0011 or +0.15%.

Traders Anticipating a Huge Jump in Quarterly GDP

Traders are bracing for what could be the biggest every increase in GDP at 21:45 on Thursday.

Stats NZ will reveal at that time how much the economy recovered in the third quarter of this year. Most forecasts are calling for an increase of between 13 percent and 14 percent. This will be much higher than the 12.2 percent decline recorded in the second quarter, when the effects of restrictions and lockdowns were felt.

Despite the widely anticipated rebound, economists are still cautioning whether the recovery can be sustained.

ANZ Economists Say “Boing” to the Report

“Our expectation for a 14 percent quarter-on-quarter rebound wouldn’t take GDP back to its pre-crisis level, but it’s fall just 1.3 percent short. That’s pretty impressive given the border remains closed, the global economy is facing significant virus-induced headwinds, and parts of the country were under either alert level 3 or alert level 2 at some point during the quarter.”

They said the economy had been supported by the “housing-induced bump to domestic demand” and the wage subsidy.

“Fiscal policy has provided tremendous support to activity through Q2 and Q3, with the Government essentially putting a decent whack of Q2’s lost production on its balance sheet for future tax-payers to deal with, preventing incomes from deteriorating anything like as much as GDP.

“And so far, it seems to have worked a treat. But now, the time has come to wean the economy off the sweet taste of sugar-hit fiscal support, and transition towards something a little more sustainable and lower GI:  chiefly increased infrastructure spending… The key question is:  is the private sector ready to take the reins of growth? That’ll be part of the test in 2021.”