New Zealand dollar gets no lasting lift from super-strong GDP data

SYDNEY: The New Zealand dollar struggled on Thursday to get a lasting lift out of strong economic data, while the Australian dollar had to weather a messy jobs report that underlined the damage coronavirus lockdowns were doing.

The kiwi dollar was flat at $0.7114, after failing to sustain a rally to $0.7143. The Aussie was pinned at $0.7324, having touched a two-week low of $0.7315.

Both currencies have been burdened by concerns over global growth as economic news from China disappointed and Asian equity markets lagged, to the benefit of the safe-haven U.S. dollar.

The caution even overshadowed a startlingly strong GDP report from New Zealand which showed the economy grew 2.8% in the June quarter, more than double market forecasts of 1.3%.

Growth was broad-based and reinforced expectations activity would recover quickly from lockdown.

Markets are all but certain the Reserve Bank of New Zealand (RBNZ) will hike interest rates by a quarter point next month, and maybe by half a point.

The central bank delayed raising rates last month after the country was put into a snap COVID-19 lockdown, but said a hike was still on the cards.

“A red-hot economy, tight labour market, rising consumer prices, and eye-popping house price growth,” said Jarrod Kerr, chief economist at Kiwibank. “When the stars align like this, a rate hike is imminent.”

“We expect the RBNZ to follow-through in October, with three hikes to 1% by February and 1.5% by this time next year.”

The upbeat GDP data did have an affect on bonds where 10-year yields popped up 5 basis points to 1.86%, putting them a wide 56 basis points above Treasury yields.

Australian 10-year yields, in contrast, traded 4 basis points below those in the United States at 1.26%, reflecting a very different outlook for rates.

The Reserve Bank of Australia (RBA) this week again reiterated that no hike was likely before 2024 given weakness in wages and inflation.