The New Zealand Dollar has dropped sharply over the past few trading weeks and after the Reserve Bank of New Zealand decided to stop their series of interest rate increases during the last meeting, after increasing interest rates during four consecutive meetings by 25 basis points each which took the benchmark interest rates from 2.50% to 3.50%, forex traders continued to take profits as comments were made about an unsustainable exchange rate.
The correction took the New Zealand Dollar to a very strong support level and sellers have severely decreased their activity which signals a potential bottom for the time being. The Reserve Bank of New Zealand decided to halt their interest rate increases as they wanted to allow the economy to react to monetary tightening before taking further steps. The RBNZ was the first major central bank to increase interest rates and gotten ahead of the curve which should be favorable for the New Zealand Dollar.
Economic data released this week out of New Zealand has also pointed towards a much better performance over the past two months than previously expected despite monetary tightening. The service sector continued its strong expansion in August with a reading of 57.9 which was just marginally below July’s figure of 58.4. The second-quarter current account deficit rose a bit more than expected to N$1.1 billion.
The New Zealand second-quarter GDP came in better than expected and showed an expansion of 0.7% quarter-over-quarter for an annualized expansion of 3.9%. Economists expected an increase of 0.6% and 3.8% which can be compared to the first-quarter increase of 1.0% and 3.8% respectively. The stronger performance out of the New Zealand economy should translate into future strength for the New Zealand economy and forex traders are advised to seek long entry opportunities.
Data released today showed an increase in consumer confidence for the month of September of 1.8% to 127.7 which is a very encouraging sign as the consumer needs to support future economic expansion in New Zealand. More positive signs on consumer spending were delivered from the New Zealand credit card data for August which showed an increase of 0.7% month-over-month and 4.2% annualized. This compares to the 0.9% contraction reported in July and annualized growth rate of 4.5%.