New Zealand’s Gross domestic product (GDP) fell by 12.2 percent in the June 2020 quarter, the largest quarterly fall recorded since the current series began in 1987, as the COVID-19 restrictions in place through the quarter impacted economic activity. “The 12.2 percent fall in quarterly GDP is by far the largest on record in New Zealand,” national accounts senior manager Paul Pascoe said.

The Reserve Bank of New Zealand had forecast a quarterly decline of 14.2% and an annual contraction of 14.4%. Growth has been hit by a standstill in economic activity as a strict nationwide corona virus lockdown in April and parts of May forced almost everyone to stay at home and businesses to shut.

The GDP data confirms New Zealand’s worst recession, defined as two straight quarters of contraction, since 2010, with GDP in the March quarter falling 1.6%. Prime Minister Jacinda Ardern’s government, which faces an election on Oct. 17, had warned of a huge drop in activity in the June quarter, but said success in suppressing the virus locally is likely to help recovery prospects.

“Industries like retail, accommodation, and restaurants, and transport saw significant declines in production because they were most directly affected by the international travel ban and strict nationwide lockdown,” national accounts senior manager Paul Pascoe said. “Other industries, like food and beverage manufacturing, were essential services and fell much less.”

On the other hand, the dollar edged up against major currencies on Thursday following the U.S. Federal Reserve’s upbeat assessment of the economic recovery, and as its increased tolerance for higher inflation push bond yields higher.

At its policy meeting, the Fed pledged to keep rates near zero until the labour market reaches “maximum employment” and inflation is on track to “moderately exceed” the 2% inflation target. The Fed also expects economic growth to improve from the corona virus-induced drop they projected in June.

The greenback initially fell after the Fed’s announcement, and weaker-than-expected U.S. retail sales data, but swung into positive territory after Chair Jerome Powell’s comment on economic outlook.

NZD/USD 4 Hour Chart:

Support: 0.6703 (S1), 0.6674 (S2), 0.6646 (S3).

Resistance: 0.6759 (R1), 0.6787 (R2), 0.6816 (R3).

The fall of the NZD’s GDP and the optimistic Fed Powell speech made Dollar stronger than kiwi. We expect a bearish trend for NZD/USD.