New Zealand Dollar Slides Despite Positive GDP

NZD/USD posted sharp losses on Thursday, erasing the gains recorded in the Wednesday session. In economic news, New Zealand GDP posted a gain of 0.7%, above the estimate. Later in the day, New Zealand will release Business NZ Manufacturing Index. Over in the US, consumer inflation was within expectations, as Core CPI and CPI both posted small gains of 0.2%. The Philly Fed Manufacturing Index beat expectations, but Unemployment Claims was higher than expected. On Friday, the US releases Building Permits, a key release.

The New Zealand dollar has dipped back below the 0.70 level, as NZD/USD has dropped about 100 points on Thursday. A solid New Zealand GDP report has not been enough to stem the kiwi's slide. The economy expanded o.7% in the first quarter, beating the estimate of 0.5%. However, this was weaker than the third quarter report of 0.9%. The primary driver behind the GDP reading was a strong construction sector. Earlier in the week, New Zealand numbers were a mix. Current Account improved sharply, posting a gain of $NZ 1.31 billion in the first quarter, well above the forecast of $NZ 0.97 billion. This ended a nasty streak of three consecutive declines. However, the GDT Price Index dipped to a flat 0.0%, compared to a strong gain of 3.4% in the previous release.

The Federal Reserve was center stage on Wednesday, but there was no surprises as the Fed opted for the sidelines and held the benchmark rate at 0.25%, where it has been pegged since December 2015. A dismal Nonfarm Payrolls report and dovish statements from Fed chair Janet Yellen and her colleagues had all but decimated any chance of a June hike. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in "the coming months". The Fed's tone has drastically changed since then, and there is a strong likelihood that the Fed will raise rates only once in 2016. The Fed statement did not shed any light on the timing of a rate hike, although many analysts are circling September in their calendars. The statement was cautious in tone, stating that the Fed expects US inflation levels to remain at low levels in the near term. As well, the Fed lowered its rate path outlook for 2016 and 2017. Gone are the heady days of December, when the Fed hinted that it could raise rates up to four times in 2016. Many analysts were skeptical about this rosy (brash?) prediction, and it appears that the Fed was overly optimistic about the strength of the US economy, as June has arrived and we are yet to see a rate hike in 2016.

ActionForex.com