US Dollar at Risk on GDP Downgrade, NZ Dollar Down on RBNZ Bets

The US Dollar may weaken as a downgrade of first-quarter US GDP data weighs on Fed rate hike bets. The New Zealand Dollar fell on building RBNZ easing speculation.

Talking Points:

• NZ Dollar Swoons Amid Building RBNZ Interest Rate Cut Speculation

• Unexpected Swiss GDP Drop Fuels SNB Easing Bets, Punishes Franc

• US Dollar May Weaken as GDP Downgrade Weighs on Fed Outlook

The New Zealand Dollar underperformed in overnight trade, falling as much as 0.8 percent on average against its top counterparts. The move tracked a slump in front-end bond yields, pointing to building RBNZ rate cut speculation as the catalyst behind the move.

A round of disappointing economic data may have inspired the shift in investors’ outlook. Building permits fell 1.7 percent in April while a measure of business confidence from ANZ bank dropped to the lowest level since September 2014. Markets now price in a 54 percent probability of an RBNZ rate cut at the next policy meeting. That amounts to the most certain that investors have been about on-coming easing in three years.

The Swiss Franc likewise traded lower after GDP figures unexpectedly showed the economy contracted 0.2 percent in the first quarter, marking the worst result since the three months through September 2011. The currency’s slump was mirrored by a drop in Switzerland’s benchmark 10-year bond yield, suggesting investors took the data to mean an expansion of the SNB’s stimulus efforts may be in the cards.

Looking ahead, a revised set of first-quarter US GDP figures is in focus. A downward revision showing output shrank at an annualized pace of 0.9 percent is expected. Initial estimates pointed to a 0.2 percent increase. A soft print may weigh on the US Dollar as investors turn their gaze back to Fed rate hike expectations, which have conspicuously stagnated this week even as the greenback soared.