NZD/USD: relief rally after strong New Zealand GDP data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 17, 2021
  • The NZD/USD crashed after the latest Fed interest rate decision.
  • The pair then staged a recovery after the latest New Zealand GDP data.
  • The country’s economy rose by 1.6% in the first quarter.

The NZD/USD pair declined sharply after the latest Federal Reserve interest rate decision on Wednesday. It then pared back some of those gains after the relatively strong GDP data from New Zealand. The pair dropped to 0.7042, which was 3.75% below the highest level this year.

New Zealand dollar
New Zealand dollar chart

New Zealand GDP and Fed

The biggest catalyst for the NZD/USD was the Fed interest rate decision. On Thursday, the central bank concluded its meeting and left interest rate and quantitative easing policy unchanged. Interest rates remained intact at a record low of between 0% and 0.25% while the pace of asset purchases remained at $120 billion per month. This decision was in line with what Wall Street analysts were expecting.

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The pair dropped sharply because of the forward guidance. In it, the bank signaled that it would start hiking interest rates in 2023, earlier than the previous guidance. There is also a possibility that the rate hike will come earlier since many FOMC members expect hikes in the fourth quarter of 2022. As such, the hawkish Fed pushed the US dollar higher against most currencies while the 10-year bond yield rose to 1.50%. 

The NZD/USD pared some of the losses in the early session as investors reflected on the strong GDP data from New Zealand. The data showed that the economy bounced back by 1.6% in the first quarter after weakening by 1.0% in the previous quarter. The economy rose by 2.4% year on year, which was better than the median estimate of 0.9%. 

The strong New Zealand recovery was due to the country’s reopening that happened in the first quarter and faster consumer spending. The bureau said:

“Households spent more on accommodation, eating out, and purchasing big ticket items such as furniture, audio visual equipment, and motor vehicles. This helped support the growth in retail trade and accommodation industry and wholesale trade industry.”

NZD/USD technical analysis

NZD/USD
NZD/USD technical analysis

The NZD/USD has been on a generally bearish trend in the past few weeks. This trend has seen it drop from a high of 0.7300 to the overnight low of 0.7045. The pair has also moved below the important support level at 0.7133, where it had struggled to move below before. 

A closer look also shows that the pair has moved back slightly after the strong GDP data. Therefore, the NZD/USD will likely recover as investors fade the dollar rally and then resume the downward trend.

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