Home Forex Market Analysis NZDUSD: Currency Pair Rally Unshaken by Stimulus

NZDUSD: Currency Pair Rally Unshaken by Stimulus

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NZDUSD: Currency Pair Rally Unshaken by Stimulus
  • New Zealand has stabilized its socio-economic fortress against Covid-19 to steer post-pandemic growth.
  • The trade balance between New Zealand and the US has risen by nearly 650% since 2018.
  • Biden’s stimulus may strengthen the US economy by 5.1% until 2023.

The US dollar has slipped against the New Zealand dollar by 26.66% since March 18, 2020. The NZD had receded from a high of 0.6357 on 6th March 2020 following border closures and hard-felt lockdown. The near-term GDP declined 12.2% between March and June 2020, with the recession described as the worst since the crisis of 1987. The virus has claimed only 25 lives in New Zealand out of the 5 million population, while the US has had more than 421,000 deaths since 2020.

New Zealand dollar/ US dollar chart

Two-way trade

Total two-way trade between New Zealand and the US decreased from $8.2 billion in 2018 to $6.785 billion in 2020. US exports also reduced from $4.1 billion to $2.914 billion in the same period. New Zealand has also decreased exports to the US from $4.2 billion in 2018 to $3.871 billion in 2020, owing to a decline in transportation services. However, the trade balance from 2018 has increased by almost 650% (from $128.1 million to $957.1 million) in favor of New Zealand.

Interest rates

The official cash rate (OCR) held by the Reserve Bank of New Zealand (RBNZ) into 2021 fell at 0.25%. The bank chose to boost its monetary stimulus plan and the purchase of large assets to the tune of NZD 100 billion until 2022. Having contained the extent of the coronavirus, New Zealand will realign its budget towards the funding of wage subsidies and developing local businesses. Low-interest rates will also fuel an increase in expenditure, especially in real estate.

The mean prices of houses in New Zealand in December 2020 increased by 2.6% (MoM) to hit NZ$788,967. Quarterly growth in Q4 2020 stood at 6.1%, near the 15-year high of 6.6% recorded in the 3-months leading to February 2004. Currently, housing in the country is in a bubble fueled by a strengthening currency against the dollar. Banks should adopt lower interest policies to customers with a deposit package compared to those using leverage such as assets and interests. The New Zealand economy’s speedy recovery means that the country will not experience negative interest rates in 2021.

In the US, the federal funds rate will stagnate at 0.25% since the rising coronavirus cases are overshadowing economic recovery.  The dollar index has fallen by more than 7% (YoY) and 0.06% from December 2020 to January 2021.

The dollar index has fallen by more than 7% (YoY) and 0.06% from December 2020 to January 2021.

The US economic recovery depends on government expenditures with a reinforced vaccination program to aid in business resumptions. Forecast from the Biden stimulus shows that it can enhance the economic output by 5% until 2023. With up to 173,000 daily Covid-19 infections in the US, the race is pegged on successful vaccinations. We expect an increase in imports in 2021 following the successful rollout of the stimulus.

Technical analysis

NZD/USD chart

The 14-day RSI supports a buy position at 55.067. The substantial upside will continue in tandem with the US economic stimulus, as shown in the annual chart. The 20-day SMA is bullish at 0.7226 and the EMA at 0.7227. The 50-day SMA also supports an uptrend offering new support at 0.7210.

The NZD/USD trading pair may move on a downtrend with the successful rollout of the stimulus plan, but it may still cross the 0.7300 trendlines in the first quarter of 2021.  

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