Pine wood is exported from Wellington, New Zealand. Photo by James Anderson, World Resources Institute.
- GBP / NZD spot rate at time of writing: 1.9257
- Bank transfer rate (indicative guide): 1.8482-1.8616
- FX specialist provider (indicative guide): 1.8865-1.8980
- More information on specialist FX rates here
The New Zealand dollar remains the week’s best-performing major on Thursday and is expected to be bought Westpac after Reserve Bank of New Zealand (RBNZ) hints at a pending shift in the interest rate guide, potentially removing what has been a major hurdle for the Kiwi of late.
RBNZ policymakers have been warning for months about an impending shift to negative interest rate policy, while also threatening to put a big sale on the Kiwi Dollar in the market to dominate the exchange rate by buying foreign assets, although the November policy update brought about a change in tactics.
“Global sentiment has been positive lately, capping the US dollar. But the NZD has also outperformed all major currencies. NZ economic performance during the Covid recovery is one explanation, with other easing expectations for OCR cuts,” said Imre Speizer, chief strategy officer. NZ at Westpac. “The MPS RBNZ yesterday provided more easing through the FLP scheme.”
The New Zealand government has contained the coronavirus faster than others and prior to the pandemic had one of the lowest debt-to-GDP ratios in the developed world, leaving the RBNZ’s policy stance looking incompatible with other central banks as well. -than the reality expected on the ground in New Zealand.
The discrepancy was recognized on Wednesday when the RBNZ raised its forecast for the exchange rate by about 130 basis points for September 2021, suggesting that interest rates are no longer likely to fall as far below zero as was once envisioned, which had been supports the ongoing rally in the Kiwi exchange rate.
Governor Adrian Orr said Wednesday that international and domestic demand proved tougher than expected, before picking the domestic job market and household spending power recently to praise. The bank still expects “very large and persistent” shocks to keep employment and inflation below target levels for years, but less than the August policy update, suggesting lower support may now be needed.
“Members discussed inflation and employment prospects. Staff presented a basic scenario, conditioned on a number of assumptions, including that there is no longer a substantial outbreak of the COVID-19 community in New Zealand, and that international borders will be fully opened by 2022. In this scenario, markets The workforce is projected to weaken further in the near term. It is projected to recover over the next years, particularly once borders are assumed to be fully reopened, “said RBNZ. “Inflation is projected to fluctuate around the bottom of the Committee’s target range of 1 to 3 percent.”
GBP / NZD forecast
Point: End-2020 – Q3 2021
FX Guide for Business
This, the progress towards a coronavirus vaccine and a possible change of leadership at the White House in January, all reduce the barriers facing the New Zealand Dollar, and potentially allow it to continue to outperform over the coming months. The US election result is a prospective advantage for the Chinese economy, which is New Zealand’s biggest trading partner, while a successful launch of a coronavirus vaccine will be a game-changer for the global economy and could also be key to reopening New Zealand’s borders early.
As a result expectations for the Kiwi Dollar weakness have eased and the RBNZ’s anxiety over future strength is deemed unlikely, while both have played a role in Westpac’s advocacy that bank clients are betting on an almost 5% increase in weighted trading. New Zealand Dollar over the coming months.
“Today we have more positive economic news – another very strong housing market update, which will keep the story of New Zealand’s economic performance alive for a while,” said Speizer.
Above: Currency weighting for the New Zealand Dollar exchange rate by trade. Source: RBNZ.
The Westpac notion implies a rise in the Kiwi against the Aussie, US Dollar, Japanese Yen, Pound Sterling and Euro, which collectively account for around 55% of the trade weighted index. Other exchange rates that are likely to rise include NZD / KRW and NZD / CNH, which are worth around 25% of the index.
“The RBNZ is slowly marking their exaggerated pessimistic forecast to the market as the story on the ground is bullish while the story in their Monetary Policy Statement remains grim. They are trying to change the carrier monetary policy slowly to avoid sending NZD to the month while still admitting all the new positive information,” said Brent Donnelly, a spot FX trader at HSBC. “I think this sets up an eventual acknowledgment that negative interest rates are the last thing the New Zealand economy needs.”
Donnelly said the RBNZ developed its forecasts to fit reality after the housing market exploded amid the pandemic and although New Zealand’s national borders remain closed for a period that can be extended to the end of 2021.
The resilient job market also surprised investors, traders, analysts and policymakers, with the unemployment rate rising only to 5.3% in the third quarter, the highest since the last quarter of 2016 but remaining below the 7.3% peak seen during the recovery from the crisis. financial 2008.
GBP / NZD forecast
Point: End-2020 – Q3 2021
FX Guide for Business
Parts of New Zealand experienced a second but short-lived lockdown in the last quarter while the nation’s entire tourism industry, which although valued at around 6% of annual GDP, has remained in lockdown during this time but despite this the rate of job loss has resulted in a smaller increase in unemployment.
While RBNZ policymakers may not now need to go as far as they suggested recently, this could also see New Zealand maintaining best-in-class national balance sheets as well as offering investors bond yields that remain higher than those in many other major economies.
This, in an environment where other nations’ national balances are already bloated and still deteriorating at a rapid rate while their central banks squeeze returns to investors in the bond market, has the potential to be a recipe for continued New Zealand Dollar strength. .
“The next employment data is very important,” said Donnelly. “I still like AUDNZD lower but I modified my parameters a little bit because of the big drop. I lowered my stop loss to the entry point and will try to buy half back at 1.0557.”
Above: NZD / USD rates are shown at daily intervals along with the AUD / NZD rates (black line, left axis).
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