NZDUSD Falls as Q2 New Zealand GDP Contracts Again

NZDUSD has seen some increased volatility, with the FOMC rate decision yesterday and the Q2 GDP report from New Zealand last night. This forex pair turned bearish this month after being rejected by the 100 SMA on the weekly chart, but it reversed higher this week on anticipation of a larger FED rate cut, after the US CPI and PPI inflation reports last week.

NZD/USD has been on a long-term downtrend, but experienced a significant rebound in August as the US dollar weakened. During this period, buyers managed to push the pair above the critical 100-week Simple Moving Average (SMA), a key resistance level. This rally propelled NZD/USD up by 4.5 cents from around 0.5850, bringing it close to the 0.63 mark, which could be a high for 2024.

NZD/USD Chart Weekly – The 100 SMA Continues Acting As Resistance

However, these gains were short-lived, and the trend reversed in September. The shift in market dynamics, influenced by lower US headline inflation and remarks from WSJ’s Timiraos about the possibility of a 50 basis point rate cut, led to a notable change in expectations. As a result, the probability of a 50 basis point reduction surged to about 67% yesterday, compared to just 13% earlier last week.

New Zealand Q2 GDP Report Overview

• Quarterly GDP (QoQ): New Zealand’s GDP contracted by -0.2% in Q2, a better outcome than the expected -0.4% decline. This follows a modest growth of 0.1% in the previous quarter.
• Annual GDP (YoY): Year-on-year, the economy shrank by -0.5%, which was in line with market expectations. This also represents a notable shift from the 0.1% annual growth recorded in the previous quarter.
• Sector Performance: Several key sectors contributed to the economic slowdown, including retail trade and accommodation, agriculture, forestry, and fishing, and wholesale trade. These sectors showed clear signs of deceleration, impacting overall economic activity.

While the GDP contraction was less severe than anticipated, the report highlights the challenges New Zealand’s economy faces, especially in critical industries. The slowdown across multiple sectors reflects a fragile economic environment that may require targeted policy interventions. Further contraction or stagnation could push New Zealand toward more aggressive fiscal or monetary measures in the coming months.

NZD/USD Live Chart