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While news headlines have been busy showering Australia with praise for escaping a technical recession, New Zealand has done quite nicely itself. New Zealand was not able to avoid a recession like its Australian buddies but they were able to pull themselves out of the gutter during the second quarter when it posted a 0.1% growth. No matter how small it was, growth is growth when we’re talking about a global economic meltdown!

Later tonight at 9:45 GMT, New Zealand’s third quarter GDP figures will be available. Word on the farm is that the economy grew by 0.4% during the third quarter. With so little economic data coming out this week, this leaves us more time to investigate whether this estimate is on the money. So, let’s get our herding caps on and start counting sheep… err, I mean taking a look at recent data!

Key factors slated to drive positive economic growth for the quarter are the recent surge in home sales and the booming volume of non-meat and non-dairy exports. As New Zealand welcomed more long-term migrants than ever, demand for housing properties rose accordingly. Exports of non-primary products also increased during the quarter, supported by a 1.0% rise in manufacturing.

Still, signs of weakness are seen all over its economy. The slump in retail sales and construction activity pose a downside risk to third quarter growth figure. Recall that core retail sales printed a mere 0.1% uptick for the third quarter, much weaker than the 0.5% core retail sales increase for the previous quarter. In addition to that, building activity sank by 4.9% from July to September, marking its seventh consecutive quarterly decline. The deterioration in construction activity seems unstoppable as residential construction dropped by 5.4% during the quarter, following a 6.5% downturn in the second quarter. That being said, there is a chance that the GDP figures come in worse than expected, which could push the Kiwi to new lows…

At this very moment, the Kiwi is hovering just above its 3-month low against the dollar at 0.7026. Should this mark and the 0.7000 psychological support break, the NZDUSD could find itself down to 0.6900. Downside bias could be further amplified given the recent sentiment towards the dollar and the relatively low trading volume.

However, if the GDP report comes in better-than-forecast, the Kiwi bulls could very well have an advanced Merry Christmas. Taking a look back at New Zealand’s second quarter GDP release, the NZDUSD pair soared about 100 pips when the result not only beat the market’s consensus, but also indicated that the country was at last out of the recession.

So, we’ve got the good and the bad. What now, Forex Gump?

I’m going to go out on a limb here and say that the upcoming year isn’t looking too well for the Kiwi. The Reserve Bank of New Zealand has shown strong commitment in keeping interest rates at current levels up until mid-2010. In my opinion, this hints that there are some economic fundamental weaknesses that it doesn’t share with Australia, which has hiked rates three times already. Could the deterioration in construction activity be the culprit? Is consumer spending still subdued? Or is the persistent strength of the Kiwi weighing down heavily on its export industry? Or is it a combination of these factors?

Then again, it isn’t over till the fat lady sings! Central banks have been known for being fickle and if New Zealand’s 2010 GDP reports print some strong readings, we could see the RBNZ change its tone to a more hawkish one. With that said, strap your forex seatbelts on and prepare for the upcoming blockbuster hit “Financial Crisis: The Aftershocks.”