NZD/USD bulls retreat from three-week high to 0.6200 as NZ GDP signals ‘technical’ recession

• NZD/USD drops nearly 40 pips after NZ GDP drops for the second consecutive quarter.
• NZ Q1 GDP matches -0.1% QoQ forecasts versus -0.7% prior.
• Fed’s hawkish halt, dicey markets and fears of China labor unrest also prod Kiwi bulls.
• China data dump, US Retail Sales eyed for clear directions.

NZD/USD bulls take a breather around 0.6200, easing from a three-week high, as New Zealand (NZ) statistics flag recession fears on early Thursday. That said, the Kiwi pair rose to the highest levels since May 24 before easing from 0.6235 the previous day on the US Federal Reserve’s (Fed) hawkish halt. However, the bears were impressed by the softer NZ first quarter (Q1) 2023 Gross Domestic Product (GDP) data.

New Zealand’s first quarter (Q1) 2023 Gross Domestic Product (GDP) matches the -0.1% QoQ forecast, versus -0.7% (revised) prior. Further details reveal that the yearly figures ease to 2.2% YoY for the said period versus 2.6% market expectations and 2.3% previous readings. Given the second consecutive negative quarterly growth figure, the Pacific nation flags a ‘technical’ recession.

On the other hand, Federal Open Market Committee (FOMC) decided to keep the benchmark Fed rate unchanged at the rate of 5.0-5.25%, matching market expectations of pausing the 1.5-year-old rate hike that propelled rates for 10 consecutive times. Even so, the hawkish signals from the FOMC Economic Projections and Fed Chair Powell’s speech underpin renew bullish bias about the US central bank.

The Fed details unveil that the dot plot rose 30 bps from March for 2024 and 2025 to 4.6% and 3.4% respectively while the median rate forecasts suggest two more rate increases in 2023. Further, no rate cuts nor recession is expected in the current year whereas the median estimation for the US GDP rose to 1.0% from 0.4% in March. Additionally, Powell’s speech unveils a “meeting by meeting” approach for decision-making but signals July as a ‘live’ meeting, suggesting a 0.25% rate hike.

Against this backdrop, the markets remained volatile on late Wednesday, as well as on early Thursday. As a result, Wall Street closed mixed whereas the US 10-year Treasury bond yield eased 1.0 basis point (bps) to 3.79% but its two-year counterpart grinds higher at the three-month top to 4.70%.

Moving on, China’s Retail Sales and Industrial Production for May will be more important to watch for the NZD/USD pair traders, especially amid fears of easing economic recovery in Australia’s key customer. Following that, the US Retail Sales for May will direct the Kiwi price.

Technical analysis

Although the 100-DMA challenges the NZD/USD buyers around 0.6225, bears need validation from the previous resistance line stretched from early May, around 0.6135 at the latest, to retake control.