Data on New Zealand's GDP for the first quarter was broadly in line with forecasts, the economy continues a moderate recovery, and fourth-quarter data for last year was revised up, and accounting for the revision the annual growth rate in the first quarter was higher than expected at 1.5%. Consumption increased, both private and public, and there was a pickup in agriculture and construction.

In recent weeks, high-frequency indicators such as bank card spending and business and consumer confidence indices have been rising. This likely reflected lower fuel prices from peak levels. There remains substantial uncertainty about the speed of the recovery. However, if oil prices remain at the current, lower, level the baseline scenario envisages that the slowdown seen since March will give way to a resumption of economic growth.

The GDP data is unlikely to have a material impact on the RBNZ's stance because events on the global stage remain the key factor for inflation prospects. Economic growth favors a rate increase since the need for stimulus has diminished. Although consumer spending was slightly below forecasts, government spending showed solid growth of 1.5% and business investment rose 3.7%, which overall provides grounds to expect strong growth in the second quarter as well. The probability of an RBNZ rate hike in July remains high.

Thus, domestic factors favor an RBNZ rate increase, which in turn will support and strengthen the kiwi. The market reaction to the Fed's tightening has not yet been fully worked through. Dollar appreciation in this context is logical, but there is little reason to expect a protracted bullish trend for the dollar.

No major economic news is expected through the end of June, so the kiwi will most likely move in line with the broader FX market and await greater clarity both on the dollar overall and on further developments in the Persian Gulf. Dubai Crude fell to US$73, well below the peak of US$102.37 recorded on May 4; supplies, despite tensions, are relatively stable, and the only adjustment to RBNZ expectations was a reduction in the number of expected rate hikes this year from four to three. This is in any case a bullish scenario for the kiwi, if the RBNZ does not disappoint.

Speculative positioning for the NZD deteriorated over the reporting week to -2.7 billion, and the implied price turned south.

A week earlier, we suggested that the kiwi felt confident, and that a new low of 0.5763 would occur only in the case of hawkish FOMC outcomes. Exactly that happened. The second factor putting pressure on the kiwi is the stabilization of oil prices, which reduces the probability that the RBNZ will raise rates in July. These factors have ultimately increased pressure on NZD/USD. The bearish impulse could develop toward support at 0.5575. Over the longer term, a sharp decline is not expected, so approaching 0.5575 may produce buy signals.