New Zealand’s third quarter GDP growth figures are due on Wednesday at 2145 GMT, with forecasts projecting a slowdown in the pace of expansion during the quarter. The kiwi will be in focus as slower growth has, among others, the capacity to postpone policy normalization plans by the Reserve Bank of New Zealand.

Quarterly growth in Q3 is expected to stand at 0.5%. This compares to the preceding quarter’s 0.8%. Year-on-year, GDP is forecast to expand by 2.3% during the quarter, with Q2’s respective figure coming in at 2.5%.

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Should expectations materialize, the softening in the growth rate is anticipated to have resulted from a weakening housing market and a lack of strength in dairy prices, coupled with softer production of dairy products due to weather factors – New Zealand is a major exporter of dairy products, while slowing growth in the housing market is seen as acting as a drag on consumer spending.

The GDP figures will be the first since Jacinda Ardern’s Labour-led government took office in late October. Investors’ fears on economic policy uncertainty from a resulting center-left government pushed kiwi/dollar significantly lower over the last few months. However, some analysts argue that similar to Justin Trudeau coming to power in Canada, the positioning that took place was more of an overreaction by markets.

Weaker growth though might cast doubt on whether next year’s upbeat official projections are justified; in its half-year update, the Treasury said it anticipates growth of 3.3% in the year to June 2018. Economists are warning that Q3 GDP numbers might reflect more long-lasting effects that could be detrimental to growth further ahead. A slower pace of growth moving forward might put at risk the government’s ambitious pro-growth spending plans.

Expectations for quarterly growth are also running below the RBNZ’s latest forecast of 0.7%. A disappointment in terms of economic expansion might result in forex market participants pushing back their projections for rate normalization by the RBNZ. In such an event, kiwi/dollar is expected to head lower, with potential support for the pair coming around 0.6930, this being the current level of the 50-day moving average.

If, on the other hand, the data surprises to the upside, then kiwi/dollar would likely appreciate. In this case, a barrier to the upside could be met around last week’s two-month high of 0.7033, a level which at the moment lies not far above the current price level. A break above it, would shift focus to the 200-day MA at 0.7103 for additional resistance.

The RBNZ has indicated that it will keep rates at their current record low of 1.75% until early 2020 while inflation stabilizes around 2%. The central bank’s target for inflation is 2% plus/minus 1%.


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