Partner Center Find a Broker

New Zealand’s GDP report for the fourth quarter of 2011 just came out, and unfortunately, it didn’t score the straight A’s that the market had initially expected. According to the report, GDP growth fell from 0.8% to 0.3% last quarter, missing the forecasted 0.6% rise.

Subjects Passed:

  • New Zealand scored straight A’s in the financial, insurance, and business services as they clocked in a 1.3% gain.
  • Its G.P.A. was also greatly improved by agriculture, which rose a whopping 3.5% due to the surge in milk production.
  • It also received bonus points for hosting the 2011 Rugby World Cup. The event garnered a lot of attention and boosted retail spending early in the quarter.

New Zealand Report Card

Subjects Failed:

  • Unfortunately, New Zealand got a big fat F in manufacturing activity. It dragged down growth greatly when it declined by 2.5%.
  • Grades in government and administration activity were also terrible as it fell 2.3%. It was the largest drop recorded in almost half a decade.

In the same way that your parents got mad at you when you came home with low grades on your report card, the market showed its disappointment by punishing NZD/USD and pushing it back to .8100.

Come to think of it, scenario 2 of the guide to trading the New Zealand GDP report that I published earlier this week was practically spot on! NZD/USD bounced right off resistance and slipped back down to test former low at .8100. The only difference was that the bulk of the move took place even before the GDP report was released.

NZD/USD 4-hour Chart

Taking into consideration the big losses that NZD/USD saw in the two days leading to the GDP release, it seems to me that the market had already been pricing in a decline in growth even before the results were published. And when the report finally came out and printed below expectations, sellers pushed the pedal to the metal and took the pair even lower.

Overall, though it did turn out to be a major letdown, the weaker-than-expected growth in Q4 2012 hasn’t done much to change my overall impression of the economy. I still feel that New Zealand is on pace for a gradual recovery and that the RBNZ is still on track to raise rates later this year.

However, if we see another quarter of weak growth, I may end up singing another tune. After all, one quarter does not a trend make, but back-to-back quarters of soft growth is a whole different story. Two quarters of disappointments could drastically affect the outlook for the economy and push interest rate expectations down, and this in turn could translate to big losses for the Kiwi down the line.