Post-FOMC Bounce Hits Snag on Downbeat GDP Data

New Zealand Dollar, NZD/USD, FOMC, NZ GDP, Crude Oil – Talking Points

• New Zealand Dollar rally may stall on downbeat economic data after FOMC bounce
• New Zealand’s first-quarter GDP growth at -0.2% q/q, missing analysts’ estimates
• NZD/USD recovers after setting fresh yearly low as bulls look to push higher

Thursday’s Asia-Pacific Outlook

The New Zealand Dollar rose against a broadly weaker US Dollar overnight after the Federal Reserve announced a 75-basis-point rate hike. Bond traders bought Treasuries following the FOMC announcement, pulling down dollar-friendly Treasury yields, particularly at the short end of the curve. The DXY Index fell slightly more than half a percent moving into Asia-Pacific trading.

Earlier this week, NZD/USD fell to its lowest level since June 2020, driven by Greenback strength and a shift from risk-sensitive currencies. A pullback in specific commodity prices also weighed on the New Zealand Dollar following Chinese Covid-19 lockdowns over the last several months. New Zealand’s bond yield premium versus Treasuries rose to its highest point since May 12 this morning when comparing the 5-year tenures. A higher relative yield helps to attract capital flows.

New Zealand reported first-quarter gross domestic product (GDP) growth this morning. Quarter-over-quarter growth crossed the wires at -0.2%, missing the 0.6% q/q consensus estimate, according to a Bloomberg survey. The lower-than-expected growth rate may weigh on the Kiwi Dollar in the coming weeks, as it likely complicates the Reserve Bank of New Zealand’s policy tightening path.

Elsewhere, crude oil prices fell, likely a result of the FOMC rate decision and its potential impact on economic growth. Still, gasoline prices around the globe remain at or near record-high levels. A surprise build in US crude oil stocks was another headwind to prices. US crude oil stocks rose by nearly 2 million barrels for the week ending June 10, according to the Energy Information Administration (EIA). Analysts expected a draw of 1.3 million barrels.

Events to watch in today’s APAC Session:

• Japan Trade Balance (May)

• Australian Jobs Data (May)

• China House Price Index (May)

NZD/USD Technical Forecast

NZD/USD is testing its 23.6% Fibonacci retracement level after an intraday move trimmed strength above the Fib overnight. A clean break higher would then have prices approaching the 38.2% Fib. Alternatively, a move lower would open a path for prices to set fresh yearly lows. The Relative Strength Index (RSI) managed to recover before entering oversold territory.

NZD/USD Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter