New Zealand’s GDP rose by 0.6% in Q1 – more than expected. This prompts more rate hikes and a long term rise for NZD/USD.

Gross Domestic Product in New Zealand was expected to rise by 0.5%, and it surprised with a rise of 0.6%. It’s important to note that also the GDP for Q4 was revised to the upside – 0.9% instead of 0.8%, making the current rise even stronger.

In the past two quarters, New Zealand’s growth rate matches Australia’s – exactly the same growth rates. Among the differences between the countries, there’s a key difference in the interest rate: 4.5% in Australia and 2.75% in New Zealand.

New Zealand’s tightening cycle began with the initial raise from 2.5% to 2.75%, and it’s expected to continue. Alan Bollard, the governor of the RBNZ, hinted that this tightening cycle won’t be as strong as the previous ones, meaning that the interest rate won’t pass 8%, but there’s still a long way to go.

With the economy growing at this rate, also the interest rate will rise at a nice rate, without too many pauses.

As for NZD/USD, its moves will continue to be influenced by the general market moves as well as the local economy. Bad news from Europe sends traders to the “safe haven” currencies – the dollar, the yen and to some extent, also the Swiss Franc. The kiwi dollar, despite the sound economy, belongs to the other camp, of “risky currencies”.

But side by side with the rise in the interest rate and the improvement in the economy, the kiwi will enjoy carry trading – it will be bought by long term investors seeking to enjoying the higher yield.

Ready to connect with real Forex traders? Currensee is the first Forex trading social network.

New Zealand’s RBNZ was the third central bank to raise the rates. This is only the beginning, with more hikes expected. NZD/USD likes it. Update on this currency.

Alan Bollard, governor of the Royal Bank of New Zealand, didn’t disappoint traders, as he followed Australia and Canada. The Official Cash Rate in New Zealand is now 2.75%, up from 2.50%. This raise will soon be translated into floating mortgage rates, cooling the real estate market and taming inflation. This is only the first step:

Bollard already said that this tightening cycle won’t be at the same extent as the previous one. This means that an OCR of 8.25% is very unlikely, but there’s a lot in the middle. ASB economist Jane Turner said that while the European problems stay on the radar of the bank, we will probably see a hike of 0.25% in every upcoming meeting, until it hits 5%.

New Zealand enjoys a nice annual growth rate of 3.5%, and good trade with China. The strong winds in Europe are very far from this small distant country.

NZD/USD reacted with a rise – it jumped from 0.6660 to 0.6740 (at the time of writing) – this 80 pip jump is abnormal for this pair. It’s still far from the strong resistance line of 0.6850. If it does break higher, the next line of resistance is at 0.70 – a round number.

On the other hand, this move was expected, and the initial rise could be followed by another dip. NZD/USD already reached 0.6570 this week, almost matching last week’s low, and creating a double bottom. A break below this line would send the pair towards support at 0.64, but this doesn’t look likely at the moment.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

US Unemployment Claims and Trade Balance followed by Canada’s Trade Balance highlight this day’s events. Let’s see what awaits us today.

In the US, Unemployment Claims are expected to continue decreasing from 453K to 447K which is a good sign for the US market.

Later in the US, Trade Balance shows the opposite inclination expected to increase its balance of trade deficit by $400,000,000 from 40.4B in May. Federal Budget Balance is also expected to drastically increase its deficit exceeding May’s report by 55.9B reaching -138.6B may be caused by foreign aid plans.

In Canada, Trade Balance is expected an improvement of 0.4B following May’s decline reaching a balance of trade surplus equivalent to 0.7B.

More in Canada, BOC Governor Mark Carney speaks at the 35th International Organization of Securities Commissions (IOSCO) Annual Conference, in Montreal may provide insight on interest rates policy.

Finally in Canada, New Housing Price Index is expected to remain 0.3% as in May’s report.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, ECB President and Vice President are holding a press conference where current and future monetary policy will be discussed.

Also in Europe, European Central Bank is likely to once again leave its minimum bid rate at 1.00%.

Later in Europe, French Industrial Production is expected to drop by 0.3% from 1.0% in May.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs’ latest analysis.

In Great Britain, Asset Purchase Facility measuring the total value of money the BOE will create and use to purchase assets in the open market is expected to remain 200B as in the previous month and the Official Bank Rate is also due to stay 0.50% without change.

Read more about the Pound in the GBP/USD forecast.

In Australia, Employment Change is expected to reach 16.1K which is 17.6K lower than in May however can still have valuable positive influence on the market.

More in Australia, Unemployment Rate will probably remain 5.4% as in May presenting an overall positive indicator on the Australia’s job growth.

Finally in Australia, RBA Governor Glenn Stevens speaks at the Western Sydney Business Connection, in Castle Hill may affect currency and provide clues to future monetary policy and MI Inflation Expectations will probably remain around 3.6%.

For more on the Aussie, read the AUD/USD forecast.

In New Zealand, Alan Bollard Governor of the Reserve Bank of New Zealand testifies about monetary policy before the Parliament’s Finance and Expenditure Select Committee, in Wellington. This could have a strong effect on the currency.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.