Release: NZ GDP q/q (3Q)
Consensus Forecast: 0.6%
Date/Time: 12/21/11 at 4:45PM ET (09:30 GMT)
Can Positive GDP Data Help Boost Kiwi?
New Zealand releases its 3rd quarter GDP data in Wednesday (12/21) session and the report could act to lift the New Zealand dollar as the expectations is for a nice bounce back to growth from a poor 2nd quarter. The consensus forecast is for a 0.6% rise, compared to the tepid 0.1% seen in the 2nd quarter.
Such a reading would show that the New Zealand economy was resilient to the weakness in global growth seen during the quarter, however it will also be boosted by temporary factors such as the Rugby World Cup which was held during that time period.
From Bloomberg: About 133,000 rugby fans visited New Zealand from July to October, stoking spending on everything from transportation to hotels to souvenirs.
However, despite that boost the domestic economy is still feeling strains.
Business confidence sank for the fourth time in five months in December, ANZ National Bank said in a Dec. 19 report. An index of household sentiment fell to 101.3 this quarter from 112 in the three months through September, Westpac Banking Corp. and McDermott Miller Ltd. said in an e-mailed report the same day.
We therefore will have to look beyond the temporary factors when considering the overall outlook for the economy and for interest rates going forward. Right now the expectation is that the RBNZ holds rates steady through the middle of 2012.
Looking at overnight index swaps tracked by Credit Suisse for the expectations for RBZN rates in 1 year, we see the index pricing in a slightly negative reading - meaning the RBNZ will keep rates steady throughout the year or even cut them further from 2.5%.
According to the same Bloomberg article linked above there is a 22 percent chance of a quarter-point rate cut next month, according to a Credit Suisse AG index based on swaps trading.
Current account data from NZ on Tuesday showed a wider deficit than forecast, another point of pressure for the NZD.
From New Zealand Herald: The current account gap was $4.6 billion in the three months ended September 30, from a revised gap of $844 million three months earlier, according to Statistics New Zealand.
The annual gap grew to $8.68 billion, or 4.3 per cent of gross domestic product, from $7.4 billion, or 3.7 per cent of GDP three months earlier.
Weaker prices for New Zealand's biggest export commodities, dairy products, meat and logs, while imports also fell, shrank the goods surplus by $513 million to $481 million in the latest quarter.
With that background the GDP comes at a crucial time as it can help solidify expectations for the RBNZ and help shape the direction of the Kiwi for the next few weeks.
3 Main Scenarios for GDP Release:
1. Stronger Than Expected - Growth of 0.8% or Above:
A stronger-than-expected GDP reading - something along the lines of a 0.8% to 1.0% increase - would be a positive for the Kiwi as it would lessen the expectations for any interest-rate cuts in the near-term from the RBNZ and would keep the central bank at a neutral wait-and-see stance throughout the first half of next year. The central bank would monitor the developments in Europe and react according to the fallout from the euro-zone sovereign debt situation.
Even a neutral stance would keep the central bank at the head of the pack in terms of developed countries central banks, perhaps next to the Bank of Canada. The central banks in the US, the UK and Japan are busy conducting easing monetary policy, and the ECB and the RBA have both cut interest rates in their previous two meetings. A better-than-expected report therefore should bolster the New Zealand dollar from an interest-rate yield perspective.
2. Status Quo - Growth of 0.5% - 0.7%:
If the economy grew by the expected 0.6% quarterly rate +/- 0.1% that should still benefit the New Zealand dollar as it shows that the economy did in fact experience a nice boost from the rugby tournament and despite a difficult global picture during the time period measured the economy managed to grow at a relatively robust rate. By now the data is slightly dated and so we would have to consider it within the context of weakening business and household confidence in the fourth quarter. Such growth rate therefore would bolster current expectations for the central bank to hold rates steady throughout most of 2012 and should limit the prospect of a rate cut in the near-term.
3. Weaker Than Expected - Growth of 0.4% or Less:
In the weaker than expected case where growth is 0.4% or lower that could increase expectations of a possible short-term interest rate cut by the RBNZ and would likely pressure the New Zealand dollar against major rivals. This reading would tell us that even with the extra consumption as a result of the Rugby World Cup during the quarter the economy grew at only a modest to soft pace. With the current account data disappointing already, and business and consumer confidence reports at the beginning of the week weaker than expected it could undermine the Kiwi as we begin the new year.
AUD/NZD - Scenario #1 Could Help Finish Topping Pattern in the Pair
Taking a look at one Kiwi currency cross - the AUD/NZD - a positive GDP release (scenario #1) could help finish off what may be topping action in the pair in the daily timeframe.
We have already seen the pair move below the 21-EMA (in red) and it is currently retesting that level as resistance. While it's not shown here (but you can see it below in the weekly chart provided) throughout most of 2011 NZD strength had been the dominant trend in this pair with the rally in the daily chart throughout October and November being a counter-trend move to that dominant trend.
Therefore, if we see the GDP release coming in better than expected (or maybe even scenario #2 might suffice) it could solidify the expectation that the RBNZ will not be following the RBA in terms of lowering interest rates and it could mean a break of the 1.3060 lows set this week. That would imply a further retracement of the Oct/Nov rally seen in the pair.
The 55-EMA (blue) currently comes in at 1.3030 while the 200-EMA (dark gray) is currently at 1.2950. These will be important levels of support for the pair and beyond that we are looking at the 50% Fibonacci retracement of that full rally at 1.2820 and the 61.8% retracement at 1.2710.
Here's the weekly chart of AUD/NZD: