NZD/USD weakens near 0.6200 as New Zealand GDP shrinks by 0.2% in Q2
- NZD/USD loses ground around 0.6200 in Thursday’s early Asian session.
- New Zealand’s GDP fell 0.2% in Q2 vs. 0.1% growth prior, better than expected.
- The US Fed cut its interest rate by 50 bps to 4.75%-5.0% on Wednesday, as widely expected.
The NZD/USD pair edges lower to near 0.6200 during the early Asian session on Thursday. The recent GDP data revealed that New Zealand's economy shrank again in the second quarter, suggesting the depths of its economic malaise. Later on Thursday, the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales will be released.
Data released by Statistics New Zealand showed on Thursday that the country’s Gross Domestic Product (GDP) contracted 0.2% QoQ in the second quarter (Q2) compared with the 0.1% growth in Q1. This reading came in above expectations of a 0.4% contraction. Meanwhile, the annual second-quarter GDP came in at -0.5%, compared with the 0.5% growth in Q1, in line with the estimations.
The stronger-than-expected GDP number failed to boost the Kiwi as traders continue to assess the Federal Reserve’s (Fed) jumbo interest rate cut in quite a volatile session on Wednesday. Financial markets are now pricing in more than 50% odds of a 50bp cut by the Reserve Bank of New Zealand (RBNZ) as soon as October.
On the USD’s front, the US Fed slashed its benchmark interest rate by 50 bps to 4.75%-5.0% for the first time in four years, as widely expected. Fed officials shift their focus to supporting a weakening job market and achieving a rare “soft landing," which curbs inflation without causing a sharp recession.
During the press conference, Fed Chair Jerome Powell said the half-point rate reduction did not represent any new pattern for the central bank but that policymakers want to keep the economy and the labor market in good shape.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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