The week ahead is dominated by the Reserve Bank of New Zealand’s (RBNZ) rate meeting on Wednesday March 9.
The central bank has the highest base lending rate in the G10 at 2.50%, which makes it a target for carry traders, seeking yield.
The carry trade has arguably been one of the most important drivers of New Zealand dollar strength over recent years.
It is where global investors snap up New Zealand sovereign bonds, and other high-yielding financial products.
The funds used to purchase these products are borrowed from low interest rate jurisdictions, such as the UK, US and Eurozone where borrowing is at record lows.
This has posed a problem for policy-makers at the Reserve Bank of New Zealand who would prefer their currency, since it has always gained an artificial prop from carry.
Fighting the currency’s appreciation would be best conducted by a cut to interest rates, but high house prices complicate the picture. Any rate cuts could push New Zealand’s red-hot property market to ever higher levels.
“We don’t expect a cut next week or all year, despite the slide in inflationary expectations,” say TD Securities in a weekly note to clients,
“The RBNZ has a lot more work to do to convince the population and markets that inflation is closer to 1.6% than zero.”
Apart from the RBNZ meeting, Card Spending (mom Feb) is out on Monday (-0.6% prev).
House Sales in February are out on Thursday (4.3% prev).
Business NZ Performance of Manufacturing (Feb) is also out on Thursday 10, (57.9 prev).
ANZ: The Case for a Rate Cut is Increasing
Not everyone shares the views held at TD Securities that the RBNZ is going to sit idle and watch the NZD trend higher.
According to an in-depth analysis by ANZ Bank, the economic and monetary situation in New Zealand now provides sufficient cause to expect the RBNZ to cut its OCR by at least 50 basis points in 2016, bringing it from 2.5% down to only 2.0%.
ANZ’s economic team cite three fundamental pillars supporting their increasingly dovish outlook;
The first is that, “a moderation in economic momentum, now appears to be around the corner at a time when inflation is weak,”
The second is, “global unease,” due to China’s problems – “and they (China) will export them.”
The third and final reason Is rising “funding costs” which if not “compensated for by monetary policy, will accentuate decelerating economic momentum.”
Pound to New Zealand Dollar Forecast
The GBP to NZD pair has been falling in a descending channel since rolling over after reaching a peak of 2.5209 in August 2015.
The down-trend is dominant and forecast to continue.
There is a major support and resistance level at 2.0972 which provides an obstacle to further down-side pressure.
Nevertheless, a re-break below the current 2.0672 lows would probably confirm a resumption of the down-trend towards the next target for the pair at the S1 Monthly Pivot at roughly 2.0340.
PS: Copy signals, Trade and Earn on Forex4you - https://www.share4you.com/en/?affid=0fd9105
