NZD/USD rises towards 0.7100 on strong NZ Q1 GDP print

• NZD/USD reverses post-Fed losses as NZ Q1 GDP misses recession fears.
• Markets stabilize after the Fed-led wild moves that propelled US Treasury yields, greenback.
• Fed kept monetary policy intact, Powell accepts more persistent inflation fears.
• Aussie data, risk catalyst to offer a busy day ahead.

NZD/USD takes the bids around 0.7070, after the heaviest daily drop in two weeks, amid the initial Asian session on Thursday. The kiwi pair’s latest U-turn could be traced to the strong New Zealand (NZ) GDP reading for the first quarter (Q1) of 2021 that saved the economy from falling into a technical recession.

NZ Q1 GDP rallied beyond 0.5% forecast and -1.0% prior on QoQ to 1.6%, per the latest release. The update also prints a 2.4% YoY GDP growth versus +0.9% expected and -0.8% previous readouts (revised).

Read: Breaking: NZD GDP beats estimates, kiwi correcting higher

Although the NZD/USD pair reacts positively to the key news, such an announcement was expected after upbeat economic forecasts from the New Zealand Institute of Economic Research (NZIER) and the Reserve Bank of New Zealand (RBNZ), which in turn probe bulls.

On Wednesday, the kiwi pair dropped to the lowest since mid-April, not to forget posting the heaviest losses in two weeks, after the US Federal Reserve (Fed) revised up its economic forecasts and more policymakers back the rate hike concerns.

The Fed kept monetary policy unchanged, as expected, but the forecasts said that US GDP may grow 7.0% in 2021 versus 6.5% previous whereas the PCE figure, the Fed’s preferred inflation gauge, is now seen at 3.4% for 2021 and 2.1% for the next year. Also negative for the NZD/USD prices were rate-hike expectations, mostly known as dot-plot that signaled seven Fed officials expect hikes in 2022 and 13 in 2023. It’s worth noting that Fed Chairman Jerome Powell accepted that the inflation run-up could be more consistent than earlier expected and weighed on the market sentiment, as well as on Kiwi.

Following that, the US dollar index (DXY) jumped the most in over a year while the US 10-year Treasury yields rallied 8.2 basis points (bps) to 1.58%. It’s worth noting that S&P 500 Futures seek fresh clues while taking rounds to 4,200 by the press time.

Having witnessed the initial market reaction to the NZ GDP release, New Zealand’s economic calendar is empty. However, the scheduled speech of RBA Governor Philip Lowe and the Aussie jobs report for May can keep NZD/USD traders busy. Also important will be to observe how the traders digest Fed’s moves and the escalating US-China tussles. Amid these catalysts, the kiwi pair is likely to remain pressured as the RBNZ have started hesitating of late.

Technical analysis

NZD/USD is well below the key supports surrounding 0.7100, not to forget early April tops near 0.7070, suggesting further weakness towards the yearly bottom of 0.6955 marked in March. However, the 0.7000 psychological magnet may offer an intermediate halt to the quote.