Kiwi and Aussie Move Separate Ways as New Zealand Economy Grows Strongly

The Kiwi and the Aussie moved separate ways on Thursday, following strong performance of New Zealand's economy in the March quarter. At around 6 am GMT, the U.S. dollar added 0.3% to its value against the Aussie to stand around 0.9323. At the same time, the greenback retreated against the Kiwi by 0.57% to 1.1875. The Kiwi was provided with a kick following better than expected GDP growth performance in the March quarter. According to official figures, New Zealand's GDP grew 0.8% in Q1, much above a revised 0.5% figure recorded in the last quarter of 2010 quarter and some way above 0.4% forecasted by most analysts. Strong growth came in spite of a devastating earthquake that has struck New Zealand's second biggest city – Christchurch. After the New Zealand economy showed surprising strength in the first quarter, most economists are now convinced New Zealand's central bank will raise its interest rates this year. New Zealand's economy has been performing strongly compared to other developed nations following the financial meltdown in 2008. New Zealand benefited from rising commodity prices, while its banks did not engage in ludicrous behavior like many of their American and European counterparts. It is very likely that strong growth will extend at least to the June quarter; when the full effects of the reconstruction program in earthquake affected areas start to kick in. Traders were less impressed by Australia's performance, however. Inflation expectations was the only major news published by Australia on Thursday. According to the Melbourne Institute data, Australia's consumer inflation expectations rose 3.4% in July, from 3.3% in June. It seems that the latest figure is not enough to persuade traders to think the Australian central bank will have to step in and raise its interest rates in order to keep inflation under control. Like New Zealand, Australia was hit hard by natural disasters, namely the Queensland floods, so Australia's central bank will be under pressure not to start raising its interest rates too soon in order to avoid damaging the economic recovery. How quickly can Australia and New Zealand leave their natural disaster woes behind them will depend a lot on the performance of the Chinese economy. The latest results from the Asian Dragon suggest its economy is cooling down, but remains very strong nevertheless. Australia and New Zealand are major exporters of commodities, while China is the world's largest consumer of raw materials. To that end, the performance of Australia's and New Zealand's economy is becoming increasingly dependent on the strength of the Chinese economy. On Thursday, the prices of commodities provided boost for both the Aussie and the Kiwi, gold rose 0.31% to $1,586.35, while silver moved 1.66% ahead to trade around $38.09. The price of crude oil is slowly reaching the $100 level, rising 0.29% to $98.09. The price of natural gas remained flat, however, standing around $4.378, while the price of copper increased 0.52% to $4.415. ACTION ITEMS:

Bullish:
Traders who believe that the Australian and New Zealand economies remain strong due to rising prices of commodities and strong growth in China, providing a lot of tailwind for the Aussie and the Kiwi, might want to consider the following trades:

• CurrencyShares Australian Dollar Trust ETF FXA is a long play on the Aussie. FXA will rise if the Aussie appreciates.

• WisdomTree Dreyfus New Zealand Dollar Fund BNZ is a long play on the Kiwi. BNZ will rise if the Kiwi appreciates.

• Dow Jones-AIG Commodity Index Total Return ETN DJP is a long play on commodities. DJP will rise if the prices of commodities increase.

Bearish:
Traders who believe that the performance of the Australian and New Zealand economies will suffer due to a slowdown in China, which might also depress commodity prices, providing a lot of headwind for the Kiwi and the Aussie, may consider an alternate positions:

• ETFS Short New Zealand Dollar Long US Dollar ETC (Sterling) ETF (SNZP) is a short play on the Kiwi. SNZP will rise if the Kiwi depreciates.

• ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD) is a short play on the Aussie. SAD will rise if the Aussie depreciates.

• PowerShares DB Commodity Short ETN DDP is a short play on commodities. DDP will rise if the prices of commodities fall.

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