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The lower it goes New Zealand Dollar to US Dollar As prices fell, more and more speculators opened long positions on the New Zealand dollar. However, sooner or later, they will realize where their position will lead them. Let’s discuss this topic and develop a trading plan.
NZD Weekly Fundamental Forecast
Exaggerated expectations often turn into losing illusions. In June, the Reserve Bank of New Zealand’s hawkish rhetoric allowed traders to predict that domestic interest rates would remain unchanged for longer than those of other central banks. Combined with a slowdown in the US economy, this sent the New Zealand dollar to its highest level since mid-January. But the future was not as rosy as it was portrayed.
As a general rule, a strong economy means a strong currency. This fundamental principle has always been true. Although New Zealand’s economy recovered from recession in the first quarter, it remains weak. Westpac Bank expects GDP to grow a modest 0.1% in the April-June period on the back of net migration falling to an 11-month low and fiscal policy tightening.
Immigration to New Zealand
Source: Bloomberg.
New Zealand’s Treasury expects to return to a budget surplus in 2028, and estimates net debt will rise to 43.5% of GDP in 2025 and fall to 41.8% of GDP in 2028. The regulator is exploring options to raise revenue and cut spending, which is unlikely to help an economy teetering on the brink of recession.
What’s more surprising is the continued interest from speculators in the New Zealand dollar. In the week to June 25, asset managers piled their net long positions to the highest level since January 2021, while hedge funds have been piling in since December 2021. They are likely taking cues from the Federal Reserve’s forecast that interest rates will not be cut until the third quarter of 2025, the continued rise in US stock indices, which signals a strong global appetite for risk, and Bloomberg economists’ increased estimates for the Chinese economy.
China’s economic growth forecast
Source: Bloomberg.
However, the Fed’s stubborn reluctance to signal a cut in the federal funds rate in September, the yuan’s slide to an eight-month low against the US dollar, Donald Trump’s rising chances of winning the election in November, and the weakening New Zealand economy have been a bucket of cold water for NZD/USD traders.
According to Capital Economics, the first-quarter GDP growth is nothing more than a dead giveaway. A slowing New Zealand economy will force the Reserve Bank of New Zealand to cut interest rates much earlier than expected, as early as 2024. Divergences in economic growth and monetary policies between the Fed and the People’s Bank of China are putting pressure on the renminbi and its alternative currencies, including the kiwi.
Adding to this the success of Donald Trump in the debate with Joe Biden and the Supreme Court’s decision to grant some immunity to the 45th US President, the risks of renewed trade wars between Washington and Beijing are increasing. Against this backdrop, markets are witnessing increased risks to the New Zealand dollar in the forex market.
NZDUSD Weekly Trading Plan
Thus, speculators have fallen into a trap. And only disappointing US labor market statistics for June will save them. In this case, the US economy will collapse. New Zealand Dollar to US Dollar The pair may consolidate in the range of 0.605-0.615. Otherwise, the pair faces the risk of sliding to 0.595.
NZDUSD price chart in current situation
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