A slowdown in the RBNZ’s monetary expansion cycle, Donald Trump’s tariff deferral, and an improving global risk appetite have created tailwinds for NZDUSD. Let’s discuss it and make a trading plan.
The article covers the following subjects:
Highlights and Key Points
- Devaluation of the “kiwi” risks accelerating inflation.
- The US would not like to impose tariffs on China.
- Increased risk appetite supports the NZ dollar.
- NZD/USD’s rebound from 0.64 and 0.646 is a reason to sell.
Monthly Fundamental Forecast for the NZ Dollar
The New Year has brought new leaders to the Forex market, with the New Zealand dollar confidently leading the G10 currency race. The losing streak for NZDUSD seemed to last forever: the pair dropped by 5.6% in Q4 amid the aggressive monetary easing cycle by the Reserve Bank of New Zealand (RBNZ), the country’s economic recession, and concerns about a renewed US-China trade war. However, the “kiwi” was able to transform from an ugly duckling into a beautiful swan.
What doesn’t kill you makes you stronger. According to ANZ Bank New Zealand, the devaluation and rising oil prices will increase the risks of slowing down the RBNZ’s monetary expansion cycle. In 2024, the central bank cut the cash rate by 125 basis points and signaled a significant 50 basis point cut in February. However, consumer prices anchored near 2.2% have economists questioning the regulator’s next move: half a point or a quarter?
NZ Inflation Trends
Source: Bloomberg.
ANZ predicts that the key interest rate will not fall below 3.5% from its current 4.25%. If this holds true, overstated market expectations regarding the scale of monetary easing could benefit the New Zealand dollar.
The gloomy outlook for the island nation’s economy is prompting its population to seek better opportunities abroad. In the 12 months leading up to October, a record 78,000 people emigrated. As a result, New Zealand is experiencing a slowdown in labor force growth, increasing the risks of labor shortages, rising wages, and higher inflation.
NZ Workforce Trends
Source: Bloomberg.
The RBNZ’s monetary expansion cycle slowdown is far from being the only trump card for NZD/USD bulls. Following Donald Trump’s victory in the presidential election, fears of a renewed US-China trade war intensified. China is New Zealand’s main export market, and an economic slowdown in China would bring meaningful pain to the island nation.
The fact that the Republican president did not implement his earlier promises to impose tariffs against Canada, Mexico, and China on Inauguration Day ratcheted up the strengthening of the yuan and its proxy currencies, including the “kiwi.” Shortly after, Donald Trump told Fox News that he would prefer not to impose new tariffs on China, adding that he liked Xi Jinping and that they had always had a good relationship.
The third reason for the NZD/USD rally at the start of the year is the improved global risk appetite, driven by the White House’s delay in introducing universal tariffs, developments in artificial intelligence technologies, and clues from the president on a federal funds rate cut. Being a risk-sensitive currency, the New Zealand dollar benefits significantly from such an environment.
Monthly Trading Plan for NZD/USD
The NZDUSD rally could continue, but not for long. I advise switching from short-term buying to selling on pullbacks from resistance at 0.64 and 0.646.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of NZDUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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