New Zealand's Q2 GDP release to guide RBNZ's next rate move

The reaction of NZD/USD is expected to depend less on optimistic bank projections and more on the extent to which the actual data differs from the RBNZ's flat 0.0% quarter-on-quarter base, as that is the figure supporting the central bank's present policy stance.

A result matching or exceeding that flat prediction would probably be seen as slightly positive for the recovery, but not enough to significantly change rate expectations, since the RBNZ has already indicated it can delay its next OCR adjustment until December.

An undershoot would bring back the weaker growth story and strengthen the case for that easing schedule.

With higher-tier data, especially inflation, still due before the October OCR review, this single figure is unlikely to be the key factor for the New Zealand dollar's near-term direction.

The New Zealand dollar fell sharply after the Federal Open Market Committee (FOMC) meeting.

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The New Zealand economy probably saw minimal growth in the last quarter, giving the Reserve Bank little incentive to hurry its next rate decision.

Summary:

• The Q2 GDP preview is scheduled for Thursday at 10:45am NZT (2245 GMT Wednesday, 6:45pm ET Wednesday).
• The RBNZ's own projection is for no growth, 0.0% q/q; ANZ's internal estimate is a bit higher at 0.1% q/q.
• Annual growth is expected to strengthen to around 2.1% to 2.2%, up from 1.5% in the year to Q1, when the economy expanded 0.8% q/q.
• Higher fuel prices are thought to be reducing discretionary spending, while construction and business-facing services are predicted to compensate for that drag.
• Balance of payments figures, released a day earlier, are expected to indicate the annual current account deficit widening to 3.9% of GDP due to higher fuel import costs.
• The RBNZ has indicated it can postpone its next OCR change until December, with inflation data due before the October review considered more influential.

New Zealand's Q2 GDP preview suggests an economy that is stalling but not contracting. The release is set for Thursday at 10:45am NZT (2245 GMT Wednesday, 6:45pm ET Wednesday). The RBNZ's September Monetary Policy Statement projects flat growth of 0.0% quarter-on-quarter, while ANZ Research forecasts a slightly higher 0.1% q/q figure, revised up from an earlier prediction of a 0.2% decline. Both forecasts would result in annual growth firming to around 2.1% to 2.2%, compared with 1.5% in the year to Q1, when the economy grew 0.8% q/q.

The anticipated slowdown in quarterly growth is attributed to higher fuel prices, which analysts indicate reduced discretionary spending and overall consumer confidence during the June quarter. Sectors vulnerable to that decline in discretionary spending, such as transport and tourism, are expected to have contracted. Counterbalancing that drag, ANZ notes an increase in construction activity from recent lows and ongoing growth in several business-facing services industries, including wholesale trade, which together should prevent headline GDP from declining outright.

Balance of payments figures, due one day before the GDP data, are expected to reveal the annual current account deficit expanding by approximately 0.3 percentage points to 3.9% of GDP, with increased fuel import costs identified as the primary cause.

For the RBNZ, this GDP figure has limited near-term policy significance. The central bank has indicated it can postpone its next Official Cash Rate adjustment until December, while emphasizing that the rate trajectory is not predetermined due to continued uncertainty. A result matching or slightly exceeding the RBNZ's flat prediction would probably be seen as somewhat positive for the recovery, but not a sufficient surprise to alter the central bank's perspective on its own. Further data, especially on inflation, is scheduled before the October OCR review and is expected to be more influential in that decision.

Currency traders are expected to pay less attention to the more optimistic bank projections and more attention to how much the actual reading deviates from the RBNZ's flat baseline, since that number is the basis for the central bank's current policy direction.