Capital Trust Markets – At 17:45 EST on Wednesday, 19, Statistics New Zealand will report the GDP figure for the final quarter of 2013. The figure comes after the notoriously hawkish Reserve Bank of New Zealand (RBNZ) lived up to its reputation and hiked the nation’s official cash rate to 2.75%. The hike boosted the Kiwi through the upper channel of a flag-esque formation to year-long highs versus its US counterpart, and the NZDUSD now sits just shy of 2013 highs of 0.8675, reached during March last year.
With the ongoing situation in Crimea, risk-off assets such as the Kiwi generally struggle, but the rate hike looks to have helped it buck tradition, The question now is, can the GDP figure help sustain the momentum?
Consensus hints at final quarter growth deceleration, with expectations slated at 0.9% growth versus growth of 1.4% for third quarter 2013. As ever, a deceleration in itself would likely not pare the pair’s recent gains. A downside miss however, might spark a sentiment turnaround and initiate a sell-off. Further to this, the aforementioned highs will likely serve up some strong resistance and add an element of technical downside pressure to the mix.
The more interesting scenario is one in which the figure exceeds expectations. As reports flooded out of Crimea on Tuesday evening that shots had been fired and military officers wounded and killed, global markets looked on to gauge the severity of the situation. As mentioned, geopolitical, and now military, unrest will often cause a mass asset reallocation towards safe haven assets such as gold and the Japanese Yen. A New Zealand GDP release at 1.0% or above will serve up a situation in which a fundamental risk-off sentiment will compete with a positive outlook for the New Zealand economy; in other words, it could translate to some heavy volatility.
March 2013 highs offer an initial target and, beyond that, the July 2011 highs at 0.8843. Bear in mind however, that to reach these targets the pair will have to overcome global sentiment, something much easier said than done.
Written by Samuel Rae – Chief Currency Strategist at Capital Trust Markets
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