NZD walks the tightrope between GDP & FOMC

11.05 NZST, Wednesday 19 June 2013

NZD walks the tightrope between GDP & FOMC

By Andrew May (Sales Trader, CMC Markets New Zealand)

The stage and backdrop is set. Markets, currency traders and investors alike are all waiting on the conclusion tomorrow of perhaps the most eagerly anticipated FOMC meeting for some time. The balance therein for the New Zealand dollar and its potential long term direction lies within US Federal Reserve Chairman Ben Bernanke’s testimony, growth outlook and of course the potential tapering to the sturdily placed US $85b per month bond buying program.

Of course the FED must tread cautiously here and while all overseas markets may be in a state of unison expecting an imminent exit plan, the numbers need to correlate for a tightening of monetary policy. Bond prices have slumped, volatility has increased fourfold and inflation remains under the key 2% mandate (1.7% as seen overnight). It’s important to note any decision delivered tomorrow will be heavily data dependent moving forward. That is, a move to suspend, lower or reduce the current pace of the bond purchasing program would be delayed and could have the potential to be reversed if the recovery effort fails and inflation or payroll numbers fall below the mark consistently.

We’ve been trading a buoyant US1c (0.7960-0.8060) range this week in the build-up to tomorrows conclusion, only faltering on Tuesday with our Australian trans-Tasman partner over dovish RBA minutes. We open today at 0.7990 ahead of New Zealand’s current account deficit GDP situation which will provide insight to our official first quarter GDP also due tomorrow morning. Market consensus is (YoY) growth to 2.5%, however the drought stricken agricultural losses faced early this year could be the unwanted gate crasher at the party. Either way, traders will look to be immensely cautious with perhaps the Kiwi’s day of reckoning tomorrow.

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