NZ GDP Preview: NZDUSD in Focus As Risky Assets Face Headwinds

The New Zealand GDP for the 1st Quarter of 2020 will be made known in a few hours. The projection is for the New Zealand economy to have contracted by 1.0%, which is a 6-point decline from the previous quarter’s 0.5% growth. After a strong start to 2020, New Zealand quickly fell under the clutches of the coronavirus pandemic and the government shut down the economy and its borders to contain the spread of the virus. The country is now free of the virus; one of the few success stories of containment due its go-hard, go early approach. But the economy is yet to fully reopen despite the lifting of many restrictions imposed during the active transmission phase.

This report is therefore expected to capture the worst moments of the economic impact of the coronavirus. This report also comes on the backdrop of the US Dollar’s three-week decline, which stalled yesterday as risky sentiments cooled off slightly. However, tensions between India and China along a disputed border area, as well as a war of words between Beijing and London over events in Hong Kong put the markets on edge on Wednesday. Coronavirus cases are also rising in China and the US, adding to the risk aversion in the markets.

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Trading the News

As the economy is just emerging from a pandemic situation, even a slightly better-than-expected GDP reading that approaches the previous figure of 0.5% or more could be positive for the New Zealand Dollar, which allows for a possible advance towards 0.65858. If the report is particularly strong, there is a chance that 0.67403 and 0.69069 may be in the firing line in the near-term.

A GDP report which shows an actual figure of -1.5% or a more negative number could evoke a negative reaction to the NZDUSD, and could prompt a decline toward 0.62835. Further support targets below this price area include 0.62347 and 0.60464. Also supporting this view is the fact that the pair is already at a major resistance, formed by the intersection of the 0.64937 resistance and the return line of the descending channel on the weekly chart.

If number meets consensus, the response may be muted and the technical setup could come to play once more.

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