New Zealand Dollar Talking Points
NZD/USD[1] extends the series of lower highs and lows from late last week as it trades to a fresh monthly low (0.6954), but the Reserve Bank of New Zealand (RBNZ) interest rate decision may sway the near-term outlook for the exchange rate as the central bank is expected to deliver another rate hike.
NZD/USD Rate Outlook Hinges on RBNZ’s Last Rate Decision for 2021
NZD[2]/USD[3] appears to be on track to test the October low (0.6877) on the back of US Dollar[4] strength, and the exchange rate may continue to depreciate over the remainder of the month as the Federal Reserve[5] carries out its exit strategy.
However, the RBNZ’s last meeting for 2020 may spark a bullish reaction in the New Zealand Dollar as the central bank is expected to increase the official cash rate (OCR) to 0.75% from 0.50%, and a second straight rate hike along with a hawkish forward guidance for monetary policy may curb the recent decline in NZD/USD as Governor Adrian Orr and Co. warn that “further removal of monetary policy stimulus is expected over time.”
As a result, expectations for higher interest rates in 2022 may generate a near-term rebound in NZD/USD, but the New Zealand Dollar may face a bearish fate if the RBNZ delivers a dovish rate hike or votes to leave the OCR at 0.50%.
In turn, NZD/USD may continue to give back the advance from the October low (0.6877) unless the RBNZ carries its hiking cycle into the year ahead, but a further decline in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen earlier this year.
