New Zealand Dollar: 'Whopping' NZ GDP Data Release Forecast this Week

The Pound to New Zealand Dollar exchange rate (GBP/NZD) is tilted lower over the short and long-term as the New Zealand economy continues to build up a head of steam.

The New Zealand currency remains underpinned by solid fundamentals.

This paves the way for a strong GDP reading on Thursday the 15th September which could well propel the NZD higher if expectations are bettered. (Release is at 23:45 BST).

Expectations for a strong reading are high with markets envisaging a 1.1% rise in quarter-on-quarter data and a 3.7% rise in year-on-year data.

ASB have told clients that they believe the NZ economy is picking up speed.

"More good news on the state of the NZ economy is likely this week. Specifically, the release of the June quarter GDP figures this Thursday morning. We expect a whopping 1.2% lift in GDP over the quarter. This lift will build on a fairly healthy run for the NZ economy since the second half of 2015, and we expect annual growth will rise from 2.8% to 3.7%," says Jane Turner, ASB Senior Economist.

Analyst Stephen Toplis at BNZ is even more bullish as he estimates the economy to have expanded 1.2% over the quarter. That’s 4.9% annualised and 3.7% higher than the level of activity reported for June 2015.

This should keep the NZD well supported, Toplis says:

"Given this, it’s not really surprising that offshore folk want to put money into New Zealand, in turn supporting the New Zealand dollar.

"In this regard it is a sanguine reminder that until there are clear signs that growth in New Zealand is softening it will be difficult to knock the stuffing out of the domestic currency."

ASB's Jane Turner notes that as the NZ economy outperforms the rest of its major trading partners, the sheer strength in the NZD could be a challenge for some of New Zealand's exports.

Particularly vulnerable to a high NZD are the sheep meat sector and forestry sector.

In addition, we have noted here that there are some who believe the solid run in NZD of late leaves the currency looking oversold, it could therefore struggle to maintain recent outperformances going forward.

Forecasts for the GBP/NZD Exchange Rate

Where to next for GBP/NZD?

As noted, the spot market is at 1.8204 at present but those with GBP/NZD payments will be dismayed on observing they are only likely to conduct international payments in the 1.7694 - 1.7567 region on their bank accounts.

Independent providers are however quoting higher between 1.8040 - 1.7913:

Latest Pound / New Zealand Dollar Exchange Rates

	Live: 2.3114▼ -0.06% 12 Month Best: 2.3553
*Your Bank's Retail Rate	2.2328 - 2.242
**Independent Specialist	2.279 - 2.2883 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The fundamental outlook for the long-term remains shrouded in uncertainty as the final form that the new trade relationship with the EU take, remains as yet unknown.

The downside bias is reflected in the charts, which show the pair in a broad down-trend since Brexit.

Most recently, however, momentum lower has tailed off and the pair has gone roughly sideways.

Overall we forecast a break lower, with a move below the July and August lows and support and resistance at 1.7657 would indicate a continuation lower.

Confirmation would come from the exchange rate breaching 1.7560, with an initial target at 1.7400:

The New Zealand Dollar’s economic data calendar kicks off with the release of Current Account figures for Q2 out on Tuesday.

This is followed by Business NZ PMI in August (55 prev) and second quarter GDP, which is the main release for the kiwi in the week ahead.

Market expectations are for GDP to grow 1.0% in Q2 quarter-on-quarter, and 3.5% year-on-year.

NZ Dollar Strength Capped as Investors Fret Over US Interest Rates

Ahead of the GDP data release we note the NZD has struggled to gather monebtum as global markets continue to anticipate impending US interest rate rises.

A speech by Boston Fed's Eric Rosengren on Friday the 9th September saw odds of an interest rate rise at this month's meeting rise to 30%. This sent global markets spiralling lower as well as commodity prices and the currencies of commodity-exporting nations.

While a subsequent speech by the Fed's Brainard pushed back against these odds by saying she did not believe the US economy ready for higher rates, the commodity currency family appear unable to recover.

The prospect of higher US interest rates will remain a theme for global markets for some time to come and could limit upside in the NZD.

Higher rates in the US should slow global economic growth while reducing New Zealand's interest rate advantage over the United States. 

New Zealand's superior interest rates have been a long-term source of NZ Dollar strength.

Yet, we believe the NZD still holds all the aces in the GBP/NZD pair.

Relatively high interest rates keep swap rates NZD supportive, dairy prices are recovering and therefore supporting the country’s largest export industry. 

Alternative exports such as kiwifruit, apples and wine are selling well year-on-year (kiwifruit up by 41% in June y-o-y) and the RBNZ continues to hold back from cutting interest rates due to fears of making the housing bubble worse.