New Zealand’s economic growth data for the second quarter is expected to show a decline from the previous quarter. However, year-on-year growth should improve compared to the stagnation of the first quarter. The New Zealand dollar has been influenced by recent actions from the Federal Open Market Committee and the reactions that followed. Australia will release job data for August, and unemployment is expected to remain steady. The Reserve Bank of Australia is not overly concerned about the labor market, even though there are signs of slowing growth.

Outlook For New Zealand Dollar

With New Zealand’s Q2 GDP data predicted to show a decline, we can expect the New Zealand dollar to remain weak. A hawkish statement from the US Federal Reserve yesterday has already pressured the kiwi, and disappointing growth figures may push it to new lows. For the next few weeks, buying NZD/USD put options seems like a smart way to protect against worse-than-expected economic results. Australia’s August jobs report is likely to reveal a stable picture, with unemployment projected to stay around 4.1%. This steady job market reinforces the Reserve Bank of Australia’s cautious approach, suggesting less volatility for the Aussie dollar compared to New Zealand. If the numbers meet expectations, selling short-dated volatility on AUD/USD may be a good strategy. The most promising opportunity in the coming weeks appears to be the difference between the two economies. A slowing New Zealand versus a stable Australia suggests strength in the AUD/NZD currency pair. Establishing long positions in AUD/NZD, possibly through futures contracts, seems to be a key strategy to benefit from this economic divide.

Market Dynamics

This situation echoes late 2023 when New Zealand faced a brief technical recession while Australia’s economy stayed robust, driven by resource exports. Current market pricing shows that options traders expect higher volatility for the NZD compared to the AUD in the upcoming month. This indicates that the market is preparing for more downside for the kiwi. Looking forward, the main influences will continue to be central bank policies and upcoming inflation data. The Fed’s indication yesterday of a possible rate hike in 2025 is likely to keep the US dollar strong, which may hinder both the NZD and AUD. Consequently, any long positions in the AUD should be hedged against the NZD rather than the strengthening US dollar. Create your live VT Markets account and start trading now.

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