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AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Sees Subdued Inflation, Moderate Economic Growth

James Hyerczyk
Updated

The New Zealand Dollar traded lower early in the session against the U.S. Dollar before mounting a solid intraday recovery. The rebound rally was likely fueled by technical factors since there were no changes in the fundamentals.

At 1843 GMT, the NZD/USD is trading .7231, down 0.0004 or -0.05%. The market made a low at .7175 before rebounding. The main range is .6953 to .7433. Its retracement zone is .7193 to .7136. This zone essentially provided support.

Earlier in the session, the Reserve Bank of New Zealand held the Official Cash Rate (OCR) at a record low 1.75 percent, where it had been for more than a year.

The Reserve Bank’s acting governor, Grant Spencer, said in the short-term it expected the economy to be weaker but it should pick up in the medium term.

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“GDP growth eased over the second half of 2017 but is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, government spending and population growth.

“Labor market conditions continue to tighten,” he said in a statement.

“Compared to the November statement, the growth profile is weaker in the near term but stronger in the medium term.”

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly,” Mr. Spencer said.

NZDUSD
Daily NZD/USD

Forecast

The decision by the RBNZ led investors to scale back the chances of a rise in interest rates anytime soon. This put pressure on the NZD/USD.

Recent data suggests a clear theme of inflation remaining lower for longer is emerging. This is giving the RBNZ time before lifting rates. Economists expect the next move in interest rates to be a rise around mid-2019.

Rising U.S. Treasury yields and expectations of two to three rate hikes by the Fed this year, or perhaps even four combined with the RBNZ’s dovish outlook for inflation and moderate economic growth likely means the New Zealand Dollar will be under pressure over the long-run.

This article was originally posted on FX Empire

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