NZD vs markets: who is the winner?

It’s not a secret that the New Zealand dollar has been suffering a lot. Although the economic indicators are encouraging, the Reserve Bank of New Zealand is prophesizing difficult times for the currency. Moreover, the below-target inflation, weak wage growth, and world economic challenges weigh on the central bank making it dovish.

In times when other central banks are becoming hawkish: rising interest rates or at least tapering the Quantitative Easing, the Reserve Bank of New Zealand keeps holding the interest rate at the record low (1.75%) since the end of 2016 and considers a possibility of a rate cut. This makes the NZD depreciate against other currencies. It’s not a secret that the rate cut will lead to the great plunge of the NZD.

Let’s have a look at NZD-currency pairs.

NZD/USD. Negative forecasts.

The New Zealand dollar has been suffering against the USD since the middle of April 2018. As a result, during 2018, the NZD has lost 5.19%. Since the beginning of July, the NZD/USD pair has been trading in the 0.67-0.6860 channel. There are no doubts that as soon as the Fed increases the interest rate, the pair will go down. According to the ANZ, there is a possibility of the rise to 0.69 during the third quarter. However, by the end of the year, the NZD/USD pair is anticipated to fall to 0.67. During 2019, losses may even worsen, 0.65 is the aim.

GBP/NZD. The pound is stronger.

Looking at the chart, we can see great volatility. The New Zealand dollar has lost 2.99% against the pound for 2018. GBP/NZD pair is more volatile than NZD/USD because of the Brexit deal that puts pressure on the pound. The further direction of the pair will be defined by a progress on the Brexit deal and the central banks’ monetary policy. The market anticipates the rate hike from the BOE that will lead to the upward movement of the pair. 

The ANZ Bank forecasts a rise of the pair to 2.05 before the end of 2018. In 2019, it will surge even higher. 2.20 level is the aim.

NZD/JPY. The downward channel is in the arena.

The Japanese yen has lost a lot against the basket. The reason is the continuing quantitative easing policy of the Bank of Japan. As a result, the New Zealand dollar didn’t lose so much against the yen as it did against other currencies. However, if the Bank of Japan gives any clues on the tapering of the Quantitative Easing, the pair will go further down. Moreover, an escalation of the trade wars tensions will play for the Japanese yen. Until then, the pair will stay within the downward channel.

NZD/CHF. The trade is in the channel.

The Swiss Franc is a refuge currency. It means that in times of uncertainties, the currency goes up. Trade wars tensions and arguments around the Brexit deal let the Swiss Franc appreciate against other currencies. And the New Zealand dollar is not an exception. The NZD had been suffering a strong fall since the middle of April. Up to now, the pair has stabilized somehow. However, it’s early to talk about the recovery to previous highs. A further escalation of the world disputes may lead to the further fall of NZD/CHF.

Making a conclusion, we can say that the NZD is anticipated to suffer in the middle and long terms even more. Hawkish sounding central banks versus the dovish Reserve Bank of New Zealand will add additional pressure on the currency. Moreover, any escalation of the trade wars tensions will pull the currency down. Until the RBNZ raises the interest rate, the NZD will stay under great pressure.