New Zealand GDP Preview: A double-beat is necessary to get the kiwi out of its misery

New Zealand releases Gross Domestic Growth numbers for the second quarter of 2018 on Wednesday, September 19th, at 20:45 GMT (the morning of September 20th in New Zealand). The South Pacific nation releases its GDP figures relatively late: after the following quarter nearly reaches its end. Nevertheless, the gauge provides an overview of the entire economy and is published only once, making an impact on the NZD/USD.

Growth in Q1 was only OK: 0.5% QoQ for a nation that saw higher growth rates in the not-so-distant past. In Q2, quarterly growth is expected to accelerate to 0.8%. The high expectations for the quarterly number come with lower expectations for the yearly figure: a deceleration from 2.7% YoY to 2.5%, deeper int he "new normal" growth, or "new mediocre."

New Zealand traded heavily with China and other fast-growing Asian countries and used to grow at a faster clip. The recent slowdown has hurt business confidence and that in turn, triggered increasing concern from the relatively new government run by Jacinda Ardern. She spoke with business leaders and tried to understand the issues at stake.

The New Zealand Dollar has been tumbling down of late. The uncertainty that followed the election a year ago was followed by a more dovish mandate for the Reserve Bank of New Zealand. The most recent concern comes from Trump's tariffs. While New Zealand is not directly impacted by US tariffs, the slower growth prospects for China and other nations also weigh on the kiwi.

The US Dollar has gained quite a bit of ground on these trade duties and also on the growing hawkishness of the RBNZ. The result is a slump from a high of over 0.74 early in the year to a trough of 0.6501 of late.

NZD/USD and the GDP numbers

Will a rise in quarterly GDP lift the NZD/USD on the way? Not so fast. A bump up in quarterly growth with a slide in the YoY expansion will not be enough to turn the tables for the kiwi. The minimum need for stabilization would, therefore, be not only an acceleration in quarterly growth but at least no slowdown in the yearly measure. 

A better outcome would be 1% QoQ and at least 3% YoY. Round numbers affect sentiment. The world has seen upbeat expansion rates in Q2, and New Zealand also had a shot at an accelerated pace of expansion.

If the publication only meets expectations without exceeding them, it will be enough for the NZD/USD to hold its ground just a for a short period and the pressure may resume at the next Trump tweet touting a trade war. 

For a more substantial turnaround, GDP would get some help from a trade truce. So far, Trump has only offered temporary reliefs, but the Administration still pulled forward with penalizing its peers. 

Conclusion

New Zealand quarterly growth is expected to accelerate in the quarterly measure but the decline in the yearly one. To see a considerable recovery after the fall, a big beat would be needed. 

More: NZD/USD loses momentum ahead of 0.66, sticks to daily gains near 0.6580