NZD/USD forecast: range bound with scope to rise
14:38, 14 September 2021
Known commonly as the Kiwi, the New Zealand dollar (NZD) is the tenth most traded currency in the world, even though New Zealand’s gross domestic product (GDP) on a constant currency basis only ranks 53rd.
One of the reasons for its high trading volume is that it is considered a carry trade currency. In other words, it provides a high yield, therefore investors buy NZD and fund it with a lower yielding currency such as the Japanese yen or the Swiss franc.
The US dollar on the other hand is the world’s reserve currency and it has been so ever since the end of the gold standard in 1971. Being the reserve currency, the US dollar is naturally the most traded currency in the world. According to the IMF statistics for the first quarter of 2021, USD accounts for almost 60% of the allocated foreigh exchange reserves.
What has been driving the NZD/USD pair’s rate in 2021 and what is its outlook as we head into 2022? We answer these questions through the latest analysts’ predictions and look at what to consider when trading the NZD versus the USD.
NZD/USD: where is the pair now?
Over the past year, the NZD/USD news has been largely a story of range-bound trading in the 0.69 to 0.74 range. It hit a peak of 0.7464 in February 2021, after the first round of reopening in New Zealand once Covid-19 cases were brought under control.
However, it had some downward pressure after the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting in June and slipped to 0.6927 soon after the meeting. The biggest slide came after a fresh round of lockdowns were announced in August and the Reserve Bank of New Zealand (RBNZ) deferred plans to raise interest rates. The NZD/USD slipped to 0.6802 on 18 August, a day after the lockdown was announced.
As markets realised that the lockdown was a temporary blip in the country’s otherwise strong economic recovery post Covid-19, the currency steadily regained strength and rose to 0.7104 on 14 September.
In the short term, analysts expect the NZD/USD to be at around 0.71 levels for the rest of September and rising to 0.73 by October, when the RBNZ is expected to go ahead with its interest rate hikes.
NZD/USD technical analysis
The current market sentiment for the NZD/USD pair is one that reflects stability. Ever since Covid-19 started to come under control in the latter part of 2020, the currency pair has traded in a largely range-bound manner with rare swings. At the time of writing (14 September 2021), data from Capital.com shows trader sentiment at 27% bullish and 73% bearish.
Analysts at Australia and New Zealand Banking Group (ANZ) see short-term resistance for the NZD/USD at 0.7170 to 0.7310, suggesting that the currency pair is closer to its ceiling than the floor. They see support for the pair at 0.6800 to 0.6960. The NZD/USD outlook for the short term will be driven by second quarter 2021 data to be released at the RBNZ’s monetary policy meeting in October, where it is likely to hike interest rates, and by the US Federal Reserve’s FOMC meeting on 22 September, which may provide more clarity regarding its asset purchase tapering plan.
NZD/USD forecast: key drivers
As New Zealand’s is a smallish economy, the movements of the NZD are typically linked to other assets and commodities. Usually, it closely tracks the developments of the AUD, the CNY and the JPY. However, in 2021 the strong economic recovery of New Zealand has seen the NZD outperform its peers.
New Zealand has vast coal reserves and the fuel is an important energy source for the country. Therefore, the NZD is affected by coal prices. Dairy products and tourism are large foreign exchange earners, therefore dairy prices also have an impact on the currency.
If dairy prices move higher, it is likely the New Zealand economy will benefit. Similarly, the currency appreciates when more visitors go to New Zealand, as was the case before the pandemic.
Movements on key Asia Pacific equity indices such as the ASX and Nikkei 225 also have an indirect impact on the NZD.
What are the analysts saying?
The New Zealand dollar to US dollar exchange rate forecast is largely bullish over both the short term and the long term.
“We’ll likely see more consolidation for the NZD/USD this week [week beginning 13 September], although we wouldn’t be surprised to see another test of the 0.7165 resistance level at some point,” the note added.
According to Imre Speizer, head of NZ Strategy at Westpac, the NZD has been capped by “faltering global sentiment, as well as local Delta concerns following Auckland’s extended lockdown”.
Commenting on the NZD/USD prediction, ANZ expects it to be at 0.74 by the end of 2021, 0.75 by the end of 2022 and 0.75 at the end of 2023. Westpac also forecasts the NZD/USD to rise to 0.74 by the end of the year. Though Westpac did not give forecasts beyond 2021, it said that it remains “bullish” on the NZD/USD long-term forecast. ASB Bank, however, forecasts the pair to drop to 0.67 by the end of December, before rising to 0.69 by March 2022.
Note that FX markets are volatile and any analysts’ NZD/USD outlooks can go wrong. We encourage our traders to do their own due diligence before making any trading decision.
Will NZD/USD go up or drop?
The NZD/USD one-month rate target is 0.7082, according to a poll by FXStreet, while the one-quarter target is 0.7124, suggesting a potentially marginal drop. Whether you buy or sell is your decision. Always remember that your decision to trade depends on your attitude to risk, conducting your own research and the spread of your investment portfolio.
What is the best time to trade NZD/USD?
While it is possible to trade NZD/USD 24/7, the best hours to trade the currency pair are when it experiences higher volumes – typically around major market announcements. New Zealand’s announcements are typically made during the early morning to noon NZ Standard Time, which is 12 hours ahead of GMT. A large part of the New Zealand morning also coincides with afternoon/early evening on the US East Coast.
Edited by Alexandra Pankratyeva
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