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NZD steady after solid GDP

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New Zealand GDP surprises on the upside

New Zealand posted a stronger-than-expected GDP report for Q2. The economy climbed 1.7%, reversing the 0.2% decline in the first quarter. The upswing in growth was driven by the government’s easing of Covid restrictions. The GDP gain removed any fears of a technical recession, which is defined as two consecutive quarters of negative growth. The New Zealand dollar is almost unchanged on the day, trading at the 0.6000 line.

Now that New Zealand’s economy is flexing its muscles, what does that mean for the Reserve Bank of New Zealand? The central bank was almost spot on with its GDP forecast at the August meeting, predicting a gain of 1.8%. At the meeting, the Bank projected that the cash rate would peak at 4.1% in mid-2023. Today’s GDP report is not expected to change that stance, with the Bank likely to raise rates by 50bp in the October and November meetings, which would bring the cash rate to an even 4.0%.

The Reserve Bank has its hands full with hot inflation, but is relief on the way? The Bank’s steep rate-tightening cycle is expected to slow inflation, which is running at 7.3%. In August, the Bank projected that inflation would fall to 6.4%. Higher interest rates will, sooner or later, bring down inflation, but of course, that is not the whole story. As borrowing and mortgage rates rise, domestic demand will fall, and this trend cannot be halted at the switch of a button. In other words, the effects of a tighter policy will be felt long after the Reserve Bank ends its rate hikes – perhaps the central bank’s biggest challenge is to guide the economy to a soft landing as it grapples with high inflation.

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NZD/USD Technical

  • NZD/USD is testing resistance at 0.6017. Next, there is resistance at 0.6085
  • There is support at 0.5929 and 0.5861
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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

Kenny Fisher

Kenny Fisher

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  • Source: https://www.marketpulse.com/20220915/nzd-dips-despite-solid-gdp/

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