Author: David Finnerty
Article: Original article
Publication date: Monday, December 19, 2022
The New Zealand dollar’s rally may come to naught if a surge in migration and rising concerns of a global recession force the country’s central bank to reconsider its plan to raise rates aggressively.
The New Zealand dollar rose by 18% from its October’s low due to the easing of Covid restrictions in China and optimistic expectations that Fed’s rates come to its peak. Even though the Reserve Bank of New Zealand announced that its key rate has to be increased from 4.25% to 5.5% next year to tame inflation, some analysts consider this hike too aggressive, as a surge in labor supply caused by migration will lower inflation risk.
According to Bloomberg Economics, the RBNZ is unlikely to implement a 125-basis-point rate hike planned for 2023, as workforce shortages will probably decrease way faster than expected. Instead, economists forecast that the bank will make its last 50-basis-point hike in February 2023, which should put pressure on the New Zealand dollar.
The group of Kiwibank economists under the leadership of Jarrod Kerr wrote in their research note from December 13 that it’s likely to see the kiwi currency’s fall in a downward spiral, as the world faces recession and commodity prices decline.
From a technical point of view, while the kiwi currency remains in a bullish trend channel against the U.S. dollar, its further growth may be limited as the currency is now in an overbought zone, according to slow stochastics, a momentum indicator. Also, its growth may be limited by technical resistance between the level of 0.6576, its high recorded in early June.
Forecast: the NZD/USD currency pair is likely to decline