New Zealand GDP Preview: Slowdown expected. reaction depends on the Fed as well

New Zealand releases its Gross Domestic Report for the third quarter of 2018 on Wednesday, December 19th, at 21:45 GMT. The small South-Pacific nation releases its GDP report only once, making every publication more impactful despite the late release, close to the end of the following quarter.

The economy grew by 1% QoQ in Q2, an impressive rate that is equivalent to over 4% annualized growth. The rapid rate of expansion in New Zealand went hand in hand with quicker paces in other countries. Year over year, the economy advanced by 2.8%.

Lower expectations, upside surprise?

Expectations for Q3 are more modest 0.6% QoQ, while YoY growth carries expectations for remaining at the same level of 2.8%.  

New Zealand's neighbor, Australia, recently published its own GDP report and it badly disappointed, coming out at 0.3% against 0.6% that had been forecast. Will we see a repeat of the same scenario? Not necessarily. The NZ labor market is doing better than the Australian one, and New Zealand is less dependent on Chinese demand. 

Lower expectations leave more room for an upside surprise. If the outcome meets early projections, 0.6% is still a decent rate of expansion that should keep the kiwi bid. 0.4% or lower would already be disappointing. 

NZD/USD reaction: The Fed sets the trend

The US Federal Reserve announces its policy at 19:00 GMT on the same day. Fed Chair Jerome Powell holds a press conference that is set to last until around 20:30 GMT. Markets are highly anticipating the Fed decision that is set to provide a meaningful reaction in the USD.

The FOMC meeting will surely move NZD/USD and will also impact the currency pair's reaction to the NZ GDP report. 

If the Fed is dovish and the USD falls, an upbeat GDP report could have a more significant effect on NZD/USD, pushing it substantially higher. But if GDP falls short after such a dovish decision, the negative impact on the pair could be limited. 

And if the American central bank is hawkish and the greenback gains, a positive growth figure may have a hard time stopping the fall of NZD/USD while a downbeat number could exacerbate the downfall.

All in all, a GDP number that goes with the trend that the Fed triggers will be more meaningful than an outcome that goes against it.