A combination of this morning’s FOMC meeting and weaker than expected GDP data pushed the New Zealand dollar down against a broad group of currencies on Thursday.
Data released by Stats NZ on Thursday morning showed that GDP rose 0.5% in the first quarter, which although higher than a 0.4% print in the fourth quarter, was comfortably below market expectations for 0.7%.
New Zealand’s national accounts manager Gary Dunnet said in Stats NZ’s accompanying press release that “much lower building activity combined with mixed results for the service sector took the shine off higher dairy production in Q1.”
As of writing at 07:20 GMT, the exchange rate for NZD/GBP has fallen steadily over a twelve-hour period from 0.573 to 0.567.
Within a similar period, NZD/AUD has fallen from 0.956 to 0.949, assisted on its way down by much better than expected Australian jobs numbers, and NZD/JPY is down to 79.07 from 79.97.
In relative terms, against the U.S. dollar, the kiwi fell even further today, and more sharply. Within the past twelve hours, NZD/USD has fallen from highs at 0.732 to 0.721.
The kiwi’s fall against the U.S. dollar has, of course, been driven to a large extent by this morning’s Federal Reserve interest rate decision and accompanying statements on monetary policy. The U.S. dollar rose broadly as the Fed went ahead with their much-expected rate hike and hinted at a further hike to come in 2017. The U.S. rate now stands at 1.25%. The Fed also maintained their previous forecast for three further hikes in 2018.
Some analysts had predicted more dovish rhetoric from the Fed in light of weak inflation data in recent months. Wednesday’s U.S. CPI numbers fell below market expectations for the third consecutive month and headline CPI was negative for the second month out of three. In regard to inflation, the Fed said yesterday that “the committee is monitoring developments closely.”
Are We at a Turning Point for NZD?
Of the FX majors, the New Zealand dollar had been the strongest performer versus the U.S. dollar in May and throughout early June, but a turn in the currency is something we warned of on BestExchangeRates.com on Saturday when we said that “in the coming weeks something will provide the necessary friction to halt or reverse the New Zealand dollar rally.” We also asked if that “something” would be today’s GDP data.
There is no foreign exchange crystal ball, but given today’s market turn it may now be wise for readers in New Zealand to consider bringing forward any plans for acquiring foreign currency this year, whether that be foreign currency for overseas trips or in the form of international money transfers.
Consider that U.S. banking giant Citi Group have forecast the New Zealand dollar to fall over the coming year. The bank’s new forecasts issued a little more than two weeks ago have the NZD/USD exchange rate falling to 0.68 over a 6-12 month time horizon. The prediction represents a near-6% fall from today’s rate. By changing money today, holders of New Zealand dollars will position themselves ahead of any depreciation in their currency’s value and maximize its buying power, which remains close to multi-month highs.
As always, readers can change money at exchange rates far better than those available at a typical bank or Bureau de Change by using BestExchangeRates’ online comparison calculators for travel cash and foreign currency transfers.
Author: Joel Wright
You can get in touch with Joel via email here or via the contact page.