December 15, 2021 3:57 AM
In the last quarter, NZ GDP printed at 2.8% q/q, well above market expectations for a 1.1% rise. Evidence of the strong momentum in the economy until an outbreak of Covid in mid-August prompted a return to lockdown.
In Q3, GDP is expected to have contracted by -4.5%, notably less than the 9.9% q/q decline from the last lockdown in Q2 2020, due to the shorter duration of this year's lockdown, the underlying momentum in the economy, and because business and households were better able to adapt to Covid restrictions.
As most restrictions have since eased, the focus now is on the rebound. Despite Auckland being in lockdown for the entire month of October, GDP is expected to increase by 3.6% in Q4.
The RBNZ's forecast for Q3 GDP is for a 7% decline. As such, tomorrow's GDP data will provide a stronger starting point, and with both inflation and employment running hot, the RBNZ will likely waste little time lifting interest rates in 2022.
The underlying strength in the NZ economy has provided little in the way of support for the NZ dollar, up against a rampant U.S. dollar in line with our view outlined here in late November.
As can be viewed on the chart below, the NZDUSD is making fresh cycle lows today and is eying support coming from the bottom of a nine-month trend channel, currently around .6690. The preference is for the .6690/70 support level to hold (if tested) before a bounce back towards short term resistance at .6800/10.
Source Tradingview. The figures stated areas of December 15th, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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