Opinions change. In August, the RBNZ expected that monetary tightening would end soon. Now the situation is different. Let us discuss the Forex outlook and make up an NZDUSD trading plan.
Weekly New Zealand dollar fundamental forecast
In August, the Reserve Bank of New Zealand was optimistic that there was very little left to do before it sticks to a wait-and-see approach. However, by the beginning of October, a lot had changed. The 6.3% NZDUSD drop in September makes it unlikely that the easing of supply restrictions and lower energy prices will offset the negative from the weak currency. Therefore, it will be interesting to listen to the RBNZ statements and watch the NZD reaction to the central bank meeting.
20 out of 22 Bloomberg experts expect the RBNZ to raise its cash rate by 50 bps on October 5, which will be the fifth in a row. Even though the New Zealand regulator is active in monetary restrictions, several 75 bps Fed rate hikes have given the NZDUSD bears a comfortable edge. As a result, Washington surpassed Wellington. This fact dealt a crushing blow to the Kiwi.
Dynamics of cash rate RBNZ and NZDUSD
Source: Bloomberg.
In August, the RBNZ predicted that a bank rate hike to 4% in early 2023 would be enough to push inflation back into its target range of 1-3%. In the second quarter, consumer prices reached 7.3%, the highest figure in 32 years. A serious weakening of the New Zealand dollar adds fuel to the fire. In this regard, 8 out of 17 Bloomberg experts believe that the cash rate in 2023 will exceed 4%. ANZ Bank New Zealand forecasts 4.74%, which is in line with futures market estimates.
The Fed surpassing the New Zealand Central Bank is not the only driver of the NZDUSD collapse. The massive tightening of monetary policy increases the risks of a global recession, while the deterioration of the global economy has a negative impact not only on US stock indices, but also on risky currencies. Kiwi is among the latter.
Another negative factor for the NZD is the rapid fall of the Chinese yuan. China is the main market for New Zealand. About a quarter of imports and exports come from this Asian country, so the decrease in the yuan’s purchasing power is bad news for the NZDUSD. The share of pessimists among New Zealand companies is 14 percentage points higher than the share of optimists regarding the prospects for their trading activity in the fourth quarter.
Weekly NZDUSD trading plan
Do not expect an improvement in global risk appetite in the face of current uncertainty. Monetary restriction operates with a time lag, that is, expect a deterioration of macroeconomic statistics for the US. Markets will take this bad news for the economy as good news for themselves, triggering an S&P 500 correction. However, everything will result in a hawkish Fed and sell-offs as in August and September. In this regard, switch from short-term NZDUSD purchases on a breakout of resistance at 0.575 to medium-term sales when the price rebounds from 0.581 and 0.586.
Price chart of NZDUSD in real time mode
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