It has been a busy week for the New Zealand dollar, which is not surprising considering the turmoil that has gripped the markets. NZD/USD is currently trading at 0.6162. That’s 0.40% less than Thursday.
New Zealand’s GDP falls
Markets expected a soft Q4 GDP report, but it was worse than they anticipated. GDP declined to 2.2% y/y after a rise of 6.4% in Q3, but it was well within the estimates of 3.3%. GDP decreased 0.6% per month after a gain of 2.3% in Q3 but below the estimate of -0.2%. The Reserve Bank of New Zealand had forecast 0.7% growth. The miss could suggest that the central bank will reduce the pace of rate rises.
Manufacturing, consumer spending, and trade are all showing signs of weakness. RBNZ predicted that the economy would enter recession in the second quarter 2023. However, the recession-like contraction in Q4 could indicate that the economy may already be in recession. The outlook for Q1 2023 is grim, made worse by the severe flooding of January and February.
This bleak backdrop may force the central bank to support its tightening plans. Although the markets expected the RBNZ to raise the cash rate by 75 basis points to 5.5% by the third quarter of 2018, it has…