The RBNZ is surprised by both the record influx of migrants to the country and the GDP contraction in the third quarter. However, the NZDUSD rally is not based on confusing data. The pair is growing due to the risk appetite. Let’s discuss this topic and make up a trading plan.
Monthly New Zealand dollar fundamental forecast
While RBNZ officials are trying to understand the intricacies of macro statistics, NZDUSD is actively growing. The pair came as close as possible to the level of 0.64 predicted in early December. All thanks to the Fed, American stock indices, global risk appetite and domestic positive data.
In theory, increased immigration should improve the labor market, reduce wage growth, and ultimately accelerate GDP and slow inflation. However, when the influx of foreigners reached a record, the Reserve Bank became seriously concerned. Due to rising housing and rental prices, inflation may remain elevated longer than expected. This forces the RBNZ to maintain a hawkish stance, retaining the possibility of increasing the cash rate.
New Zealand's net annual immigration
However, a record increase in immigration of 128,900 in the year ended in October did little to help the economy. In the third quarter, it unexpectedly contracted by 0.3% QoQ. Overall GDP is now 1.8% lower than the RBNZ expected, according to Westpac research. This reduces the assessment of inflationary pressure and the possibility of a cash rate increase.
Dynamics of cash rate and New Zealand GDP
The key driver of the NZD rally is not the supposed improvement in the New Zealand economy but the rally in US stock indices. The market is outpacing itself and will soon be punished for this. I maintain my forecasts for NZDUSD to rise to 0.64 by the end of February and to 0.66 by the end of May. However, in the short term, I recommend thinking about selling the pair in the direction of 0.631 and 0.627 with a subsequent reversal.
Price chart of NZDUSD in real time mode
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