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Another week, another opportunity at trading the news!

Tomorrow at 10:45 pm GMT New Zealand will publish its GDP numbers for Q2 2016.

Let’s explore the four questions you need to answer before you trade the event:

What the heck is a GDP report?

The gross domestic product (GDP) is the most widely-used measure of economic growth rate.

Forex traders pay attention to GDP releases because central banks also look at GDP components and their trends for clues on how to proceed with their monetary policies. Statistics New Zealand usually releases the quarterly GDP two months after the quarter ends.

Based on the RBNZ’s latest statements though, it seems like the central bank is more worried about inflation, house prices, and Kiwi strength than overall economic growth.

How did the previous release turn out?

Growth came in at 0.7% in the three months to March, which is a bit slower than Q4 2015’s 0.9% uptick but is still better than the expected 0.5% increase. This translates to a 2.80% growth from the first quarter of 2015. Not a bad deal considering that the RBNZ is only expecting a 2.50% increase for the year!

If we track growth using expenditures, we can see that investment in fixed assets rose by 2.4%, exports of goods and services fell by 1.0%, imports shot up by 0.2%, inventories built up, and household consumption inched 0.4% higher during the quarter.

Other details also tell us that it gained in construction and health industries that pushed growth higher. Construction was up by 4.9% due to construction trade services, while health and residential care grew by 2.7%.

Other big movers include transport, postal, and warehousing (+1.5%), retail trade (+1.3%), and finance and insurance services (+0.9%). Mining dropped by 3.3% though.

How did NZD react to the previous release?

Major NZD pairs during the Q1 2016 GDP release (top to bottom)
Major NZD pairs during the Q1 2016 GDP release (top to bottom)

Kiwi bulls LOVED the upside surprise and bought the currency like it was the last “Jet Black” iPhone7.

NZD/USD shot up by 62 pips (+0.88%) in the first hour of the release while NZD/JPY also climbed by 57 pips (+0.76%), GBP/NZD plummeted by 172 pips (-0.85%), and AUD/NZD dropped by 77 pips (-0.73%).

What do market players expect this time?

Analysts are expecting growth to clock in at 1.1% in Q2 2016 and show an annualized gain of 3.7%.

Sounds pretty steep, but why not? After all, dairy prices have grown consistently during the months in question.

In addition, manufacturing showed growth, business confidence picked up, trade activity exceeded market expectations, and employment and retail sales accelerated during the quarter.

The last bit is particularly important since much of the economy’s growth comes from the services industry.

NZ Reports

Before you place your orders, you should take note of a couple of points:

  • GDP is a lagging indicator. We already know that the RBNZ is confident in New Zealand’s growth, so a strong reading may not necessarily lead to a prolonged rally for the Kiwi.
  • Based on the chart above, the report’s impact on NZD tends to peter out at the start of the London session. Consider taking profits before the start of a new trading session.
  • Watch out for other catalysts that might affect NZD’s price action!

That’s it for our trading guide today. Hopefully, this information will help you make pips during the GDP release. Good luck!