What Next for the Kiwi as New Zealand Economy slows

Last week, New Zealand suffered one of the worst terrorist attacks. In the aftermath, more than 50 people died and got injured. In response, the prime minister announced that the country would ban military-style weapons, in a move that has been praised by anti-gun activists. At the same time, cracks are starting to appear in the country’s economy.

Yesterday, the country released the GDP numbers. These numbers showed that the country’s economy expanded by 2.3% in the third quarter. This was lower than the 3.1% that traders were expecting and the lowest level since 2015. On a QoQ basis, the economy expanded by 0.6% while the GDP expenditure grew by 0.5%. This was lower than the 0.6% that traders were expecting.

The reason for the decline is that New Zealand is a relatively small country with a population of 4.7 million people. The country has a GDP of more than $205 billion. As a result, it derives most of its income from the export sector. Its main export partners are Australia, China, United States, and Japan, which account for 21%, 15%, 9%, and 6% respectively. The main exports are dairy products like milk, butter and leather. Therefore, as the main export partners’ economy declines, the kiwi is affected. Recent data show that the rest of the world, particularly in China are slowing. This, means that it may be unlikely for the Reserve Bank of New Zealand (RBNZ) to raise interest rates this year. It also means that the bank could lower the rates from the current 0.75%.

This data is also similar to what other countries are releasing. Today, in Europe, Germany and French manufacturing PmI rose at a much slower rate than traders were expecting. In Germany, the PMI rose by 44.7, which was the lowest level since 2013. In France, the manufacturing PMI declined to 49.8, which was the lowest level since January this year.

The NZDUSD pair rose this week after the dovish statement by the Federal Reserve. These gains were later erased as traders digested the statement from the Fed. The chart below shows how the pair has performed in the past few days.

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