FOMC's hawkish shift is set to dominate the strong NZ GDP data near-term. Economists at Westpac target NZD/USD at 0.7000 next week, with potential to 0.6945. We are bearish for the week ahead. The next downside target is 0.7000, and below that (and more important) is 0.6945 – the major low formed in late March.
The NZ Q1 GDP report was much stronger than the market had expected, at +1.6% QoQ vs +0.5% QoQ (even if some of the surprise is probably transitory), and much stronger than the -0.6% contraction the RBNZ had forecast. It supports the RBNZ’s more hawkish stance.
Medium-term, we have been forecasting 0.75 by year end. Among the main drivers, the NZ commodity price outlook remains supportive, and as should NZ-US yield spreads. The greater uncertainty will be regarding the medium-term outlook for risky assets and the US dollar.