New Zealand dollar price forecast 24 August 2021 | NZDUSD, AUDNZD and EURNZD Fundamental analysis
Central bank decisions sometimes look illogical, but rarely funny. The apology from the RBNZ officials suggests that the country’s regulator has got into mess. What will happen next with NZDUSD? Let us discuss the Forex outlook and make up a trading plan.
Monthly New Zealand dollar fundamental forecast
Each time has its own heroes or antiheroes. Traders will remember for a long time how the pound fell after the UK left the EU, as well as how the franc and the yen soared due to the cancellation of the lower limit of 1.2 by the National Bank for EURCHF and the flash crash, respectively. 2021 will be remembered for the RBNZ’s panic, which was on the verge of raising the cash rate, but eventually retreated. The nationwide isolation of New Zealand and the retention of the main interest rate at the previous level of 0.25% was a real shock for the Kiwi. However, the NZD soon came to its senses.
An increase of inflation to 3.3%, which is above the upper limit of the RBNZ’s targeted range of 1-3%, and a drop in the unemployment rate to 4%. What other reasons are required for tightening monetary policy? Adrian Orr and his colleagues were determined to be the first among the G10 to start monetary restriction. At least most Bloomberg experts had expected the cash rate to rise by 25 bps or even by 50 bps in August. Money markets were confident that the rate would rise to 2% by early 2024, making New Zealand bonds highly attractive to foreign investors and strengthening the Kiwi due to capital inflows.
Dynamics New Zealand inflation and the Reserve Bank interest rate
Source: Trading Economics.
Alas, a pandemic intervened in RBNZ’s ambitious plans. It took only one COVID-19 case for the government to declare nationwide isolation, while the central bank remained in place. The lockdown was subsequently extended, but Adrian Orr told parliament that the pandemic would not stop monetary restrictions. This will require a significant decrease in demand. I don’t know about you, but to me it sounds like an excuse.
After other officials of the Reserve Bank became more hawkish, the money markets increased the probability of a cash rate increase in October, which supported the New Zealand dollar. An additional driver of its growth was the information that China, with the help of draconian measures, managed to cope with COVID-19 in just 4 days. If the patient zero strategy works in populous China, why not work in New Zealand. At the same time, Wellington has the opportunity to increase the number of fully vaccinated people. Currently, the figure is ridiculous – 19.4%.
In my opinion, the Reserve Bank has understood its mistake and is eager to correct it, so the cash rate increase will occur in October. Expectations of tightening monetary policy are a sure sign of future strengthening of the national currency. So AUDNZD sales towards 1.0385 and 1.327 are still relevant. The nationwide isolation in New Zealand and the subsequent retention of the RBNZ rate at 0.25% contributed to the EURNZD rise. However, the bears very quickly regained the initiative. The fall of the pair below 0.685 and 0.675 will allow entering short trades in the direction of 1.651-1.653. For NZDUSD, I expect medium-term consolidation in the 0.68-0.71 range.
Price chart of NZDUSD in real time mode
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