NZ Dollar eyes first-quarter GDP

The New Zealand dollar is steady on Tuesday. NZD/USD is trading at 0.6138, down 0.10% in the European session at the time of writing. On the data calendar, the US releases unemployment claims and the Philly Fed Manufacturing index. New Zealand will release first-quarter GDP early on Thursday.

Is New Zealand still in recession?

There is some uncertainty over what to expect from Tuesday’s GDP report. The markets are expecting the New Zealand economy to have flatlined in the first quarter. The major New Zealand banks are divided, with some projecting a 0.1% gain while others have forecast a -0.1% decline. There is no argument, however, that the economy is in the deep doldrums, having contracted in four of the past five quarters, including the past two quarters. Another decline from Q1 GDP would extend the technical recession.

For the Reserve Bank of New Zealand, a GDP of zero or close to it points to a weak economy, which will support a rate cut sooner rather than later. The RBNZ has been hawkish, insisting that it won’t cut rates before inflation is reined in. Policy makers are willing to consider trimming rates if inflation is within the target band of 1% to 3%, even if it is above the 2% midpoint. Currently, the inflation rate is at 4.0% and that’s simply too high for the central bank to start cutting rates.

The RBNZ has held rates at 5.5% at seven consecutive meetings and another hold is likely at the next meeting on July 10th. At the May meeting, members discussed the possibility of hiking rates, but like the Reserve Bank of Australia, decided against it.

NZD/USD technical

• NZD/USD is tested support at 0.6130. Below, there is support at 0.6111.

• 0.6163 and 0.6182 are the next lines of resistance.