Kiwi outpaces itself. Forecast as of 28.12.2023

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

Source: Bloomberg.

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

Source: Bloomberg.

RBNZ head Adrian Orr is surprised by both the record surge in immigration and the GDP data. According to him, before the February meeting the central bank will have new data on the labor market and inflation, which will allow RBNZ officials to make an informed decision on the rate.

Westpac's view that New Zealand is almost the only developed economy that is in recession is overly pessimistic. The latest data showed an increase in business activity, consumer sentiment and business confidence to multi-month highs. The influx of immigrants is just beginning to manifest itself. GDP is likely to accelerate in the fourth quarter.

The rise and fall of inflation is global and is linked to disruptions in supply chains. Most likely, consumer prices in New Zealand will continue to slow down, which will increase the chances of a soft landing, allowing RBNZ officials to put an end to the monetary restriction cycle and think about reducing the cash rate. The easing of monetary policy in the country will proceed more slowly than in the United States, which maintains the NZDUSD uptrend.

Monthly NZDUSD trading plan

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

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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