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The belief that the Reserve Bank of New Zealand could tighten monetary policy on an exceptional basis strengthened NZDUSD bulls. But things didn’t turn out the way they wanted. Let’s discuss this topic and make up a trading plan.
Monthly New Zealand dollar fundamental forecast
When you know how to buy on rumors and sell on facts, your chances of winning the jackpot increase dramatically. Before the February RBNZ meeting, there was a lot of talk about increasing the cash rate. Although 22 of 24 Bloomberg experts predicted that the rate would remain at the same level of 5.5%, the chances of it increasing at the next meeting were almost 47%. Many expected a signal from Adrian Orr and his colleagues, but this did not happen. As a result, along with the chances of renewed monetary tightening, NZDUSD quotes also collapsed.
The stronger the inflation, the more reasons the central bank officials have to take another blow at it. Consumer prices in New Zealand are higher than in Australia, the US, and other developed countries. Although they are slowing down, they remain above the target of 1-3%. It is not surprising that there were rumors on Forex about the growth of cash rates. The RBNZ’s neutral stance lowered the probability of such an event at the next regulator meeting to 6%.
Inflation dynamics
Source: Bloomberg.
RBNZ officials noted that rates should remain high for an extended period of time and lowered their long-term cash rate forecast from 5.69% to 5.6%. They believe that monetary expansion will start no earlier than 2025. However, the derivatives market predicts that monetary easing will begin in August.
The New Zealand dollar disappointed investors, and they began to get rid of it. As a result, NZDUSD crashed to a three-week low. Soon, the pair may even reach its lowest levels since November.
China data spoils bulls’ progress. The country’s economy is slowing, as evidenced by PMI reduction for the fifth month in a row. It seems that official Beijing lives in a world of illusions. The country’s government has set an ambitious goal of +5% in GDP for 2024. However, the problems China faces force Bloomberg experts to predict economic growth of 4.6%.
Dynamics of the Chinese economy
Source: Bloomberg.
These include the real estate crisis, weak consumer demand, deflationary pressures and geopolitical tensions with the West. They could increase even further if Donald Trump becomes president again. The Republican promised to raise tariffs on Chinese imports to 60%. In this case, what will happen to the goods, the overproduction of which is flourishing?
China is New Zealand’s largest trading partner. RBNZ officials noted that the economic outlook remains weak. To meet its ambitious 5% GDP target, China will need additional monetary stimulus, which will deal a blow to the yuan and its proxy currencies, including the kiwi.
Monthly NZDUSD trading plan
The unfavorable external background and lost illusions about the RBNZ increasing the cash rate make an NZDUSD decline in the direction of 0.6 and 0.59 highly likely. Hold the short trades entered according to the “buy on rumours, sell on facts” principle and periodically add up to them on corrections.
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.
