New Zealand dollar price forecast 7 July 2021 | AUDNZD and NZDJPY Fundamental analysis
Adjustment of monetary policy is a key driver of exchange rate formation in Forex. In 2018-2019, it lost its importance due to trade wars, and in 2020 it becomes relevant again due to a pandemic. What does this mean for AUDNZD and NZDJPY? Let us discuss the Forex outlook and make up a trading plan
Quarterly New Zealand dollar fundamental forecast
If in 2014 the financial markets were agitated by Scoexit, in 2016 it was Brexit, then in 2021 it is Pandexit. Seven years ago, Scotland tried to leave the UK, two years later, the UK took the first step towards parting with the European Union. Today, central banks, confident that emergency stimulus programs should end with the pandemic, are trying to slowly abandon the ultra-easy monetary policy.
Investors are quite justified in compiling a list of G10 regulators-issuers who are ready to normalize monetary policy. Its adjustment has historically served as the main driver of Forex pricing, although in 2018-2019 it was replaced by trade wars, and in 2020 by the coronavirus. The victory over the pandemic is approaching, so it is time to return to the previous key factors affecting exchange rates.
The first place in the list is taken by Norges Bank, which unequivocally hints at a rate hike in the second half of this year. The third and fourth are occupied by the Bank of Canada and the Fed. The Reserve Bank of New Zealand moved up to second place after the release of strong statistics on business confidence. A poll by the Economic Research Institute showed a sharp shift in corporate sentiment in the second quarter. In January-March, net pessimism about the general business conditions was 7%, then in April-June, it was replaced by pure optimism of 13%. As a result, BNZ and ASB Bank officials started talking about the fact that the cash rate could be increased as early as November, and the NZD reacted with a rapid growth against major world currencies.
Strong business confidence data allowed the derivatives market to increase the chances of the first act of monetary restriction from 50% to 90% at the November RBNZ meeting, the last in 2021. Investors believe that by the end of 2022 rates will return to the pre-pandemic level of 1%. Wellington will be one of the first to deal with Pandexit, which is a strong argument in favor of buying the New Zealand dollar.
Cash rate dynamics and expectations of its increase
Effective fight against COVID-19, New Zealand’s booming economy and a very hot real estate market create prerequisites for the start of monetary normalization. New Zealand has the biggest house bubble, according to Bloomberg research.
The growth of real estate prices in the world
Only a deterioration of the global risk appetite prevented the NZD buyers from developing an advantage. The NZDUSD and NZDJPY pairs were unstable amid falling Asian stock indices. However, I don’t think there will be a major correction in the stock market in the near future, which is unfavorable for such risky monetary units as the NZD. I believe that it is reasonable to wait for a divergence in monetary policy and continue to sellAUDNZD with targets at 1.062 and 1.054, as well as buy NZDJPY with targets at 79.5 and 80.6.
Price chart of NZDJPY in real time mode
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