Report: Kiwi dollar performs well despite domestic woe

The New Zealand economy has contracted at its fastest pace in 18 years as it was announced that the country’s recession has got worse in the fourth quarter. The economy contracted 0.4 percent in the third quarter, and 0.2 percent and 0.3 percent in the second and the first quarters of last year.

The RBNZ has cut interest rates to a historic low of 3%. Analysts are predicting that there will be another quarter percentage point cut taking place at the RBNZ’s next meeting on April 30. Fourth quarter GDP is anticipated to be 1.9 percent lower than a year ago.

However in the last week, the New Zealand dollar has rallied and posted the best weekly gains in 24 years. This comes on the back of news that the US Federal Reserve is planning to buy $300 billion of government debt which has resulted in the weakening of the US dollar as risk appetite is promoted and investors speculate that the greenback will be oversupplied. Also rallying equities have helped the NZ dollar's appeal and it's comparatively higher interest rate has seen investor demand remain firm.

New Zealand will be announcing key GDP data on March 27. The deepening recession in New Zealand has resulted in the country’s foreign exchange rating to be downgraded from stable to negative in January mainly in response to its expanding current account deficit. Investor's will watch carefully to see how this effects the New Zealand dollar's appeal.

GBPEUR: one month. Please click on graph to enlarge.