Forex Trading Guide: New Zealand GDP

Aside from the major central bank happenings this week, another top-tier event in the form of the New Zealand GDP release is scheduled to take place. Here’s my forex trading guide for this economic event.

What is the report all about?

As you’ve learned in the School of Pipsology lesson on Economic Reports, the GDP (gross domestic product) release is one of the must-watch market events. Think of it as the report card for the economy, indicating whether the country performed strongly or poorly across various sectors and summing up these grades into one neat figure.

For New Zealand, this particular release could determine if the RBNZ will keep up its pace of monetary policy tightening. Recall that the central bank already hiked rates three times this year, and market watchers are very interested to find out if more tightening moves are in the cards.

What is expected for this event?

For the first quarter of 2014, New Zealand is expected to have grown by 1.2% – a faster pace of expansion compared to the previous quarter’s 0.9% GDP reading. This could be crucial in setting the tone for interest rate expectations, as consistent economic growth could be enough to assure traders that the RBNZ will stay hawkish.

How could NZD react?

A weaker than expected reading might lead to a Kiwi selloff, similar to what happened in March when New Zealand released its Q4 2013 GDP figure.

NZD/USD 1-hour Forex Chart

NZD/USD 1-hour Forex Chart

Prior to the actual release, price moved mostly sideways then made a strong downside break upon seeing weaker than expected data. It didn’t help that the previous period’s reading was downgraded from an initially reported 1.4% growth figure to just 1.2%. NZD/USD consolidated for the next few days though, keeping its head above the .8500 major psychological support as traders were still hopeful that the RBNZ would keep hiking interest rates.

Another weaker than expected reading for the first quarter of 2014 might lead to a quick Kiwi selloff, with major support levels still likely to hold as the RBNZ has emphasized that it is not done tightening monetary policy. A stronger than expected figure, on the other hand, could lead to a strong rally and encourage more traders to jump in the long Kiwi bandwagon.

What’s your game plan for the New Zealand GDP release? Share your thoughts in our comment box or cast your votes in our poll below!