Q2 Growth Figures Soar

The New Zealand Dollar is back in demand this week following a bumper set of Q2 GDP figures released overnight. Economic activity in the third quarter was seen climbing to 2.8% in the June quarter, double the 1.4% recorded in the prior quarter and well above the 1.1% the market was looking for. On the back of the data, near term RBNZ tightening expectations have increased, feeding a strong inflow for the antipodean currency. Putting these figures in context, economic activity has bounced almost 18% from the same quarter a year prior during the height of the pandemic.

NZD On The Front Foot

The New Zealand Dollar has been a strong performer over the last month, marking a sizeable rally off the mid-summer lows. Hawkish RBNZ expectations, as well as the underperformance of the Dollar and the resurgence in commodities prices and the broader risk complex, have all been a big boost for the Kiwi. However, there have been challenges recently. The return of regional lockdowns has once again put the focus back on the downside risks and ongoing uncertainty around the pandemic. The RBNZ was recently forced to put its policy normalisation program on hold as a result of the anticipated damage to be caused from the latest lockdowns.

COVID Risks Remain

In light of the lockdowns, most players are anticipating a weaker set of Q3 growth figures. Indeed, with the lockdown in Auckland having been extended to September 21 there are growing risks of the restrictions spilling over into Q4. For now, however, the market’s base case scenario is that restrictions will be lifted in Q3 allowing for a full recovery in Q4. With this in mind, and in light of the bumper set of Q2 growth figures, the market is now looking for further tightening from the RBNS as early as the October meeting. Given the RBNZ's clear intention to continue normalising policy, moving back to a rate hike as early as next year, NZD is likely to remain supported in the near term unless we see current restrictions increased or extended.

Technical Views


The rally off the summer lows in NZDCHF has seen the market breaking above the bear channel top and above the .6387 level. Recently, the move stalled into a test of the .6540 level, but the market is now pushing past that marker and with both MACD and RSI bullish here, the focus is on a further push higher towards the .6622 level next.