The New Zealand dollar (NZD) has seen a resurgence since falling to a more than two-and-a-half-year low against the US dollar (USD) in early October 2022.
On November 2, 2022, the NZD was on track to post three consecutive weeks of gains against the greenback. The currency has also emerged as one of the main gainers among G10 currencies in recent weeks.
In this article, we look at the factors that helped the New Zealand currency, also known as the Kiwi, gain against the USD (NZD/USD) and some of the latest analyst forecasts for the NZD.
What is the New Zealand dollar?
The New Zealand dollar is the official currency and legal tender of New Zealand. The currency is also used in the Cook Islands, Niue, Tokelau and the Pitcairn Islands. It was first issued by the Reserve Bank of New Zealand (RBNZ) in 1967, replacing the New Zealand system in pounds, shillings and pence.
It was nicknamed the “kiwi” due to the country’s native bird appearing on the country’s banknotes.
According to Triennial survey of central banks by the Bank for International Settlements (BIS) published in October 2022, the New Zealand dollar is the 14th most traded currency in the world.
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What determines the value of NZD?
New Zealand’s interest rate outlook and interest rate differentials between other economies are the main drivers of NZD rates in the foreign exchange (forex) markets.
According to the RBNZ, the country has used almost every form of exchange rate regime. Between 1973 and 1984, the NZD followed a fixed exchange rate period when the Kiwi was pegged to the US dollar at a specific rate. Today, the RBNZ uses an inflation targeting regime to maintain monetary stability.
International trade is another important driver for the kiwi fruit, accounting for almost 25% of New Zealand’s gross domestic product (GDP) between 2019 and 2021. According to the World Trade Organization (WTO), China has ranked as New Zealand’s top export destination, accounting for over 31% of the country’s exports in 2021, followed by Australia, the United States, Japan and the European Union (EU).
Agricultural products accounted for 75% of New Zealand exports, with milk and cream, meat, butter and fruit being among the top export items. The country posted a current account deficit in 2021, with autos and oil being its top import items.
Historic NZD performance: A story of many ups and downs
According to NZD/USD historical data, the New Zealand dollar was valued higher than the US dollar in the 1970s. This was during a time of economic turbulence in the United States when President Richard Nixon broke the Bretton system Woods who ended the convertibility of the US dollar into gold in 1971. The NZD/USD exchange rate reached an all-time high of 1.49 in October 1973.
Two years later, the NZD fell to trade near parity with the USD.
By the turn of the new millennium in October 2000, the kiwi had fallen to an all-time low, hitting 0.39 against the greenback.
Since then, the NZD has been in cycles of ups and downs against the USD. In March 2009, the NZD/USD rate hit a multi-year low of 0.489. In August 2011, it jumped to 0.884, its highest since 1981.
The pair fell to a low of 0.546 at the start of the Covid-19 pandemic in March 2020, and tested this support level in October 2022.
Recent NZD Price Action: Rate Hike Prospects Dominate
In 2022, the global cycle of monetary tightening has become the main driver of exchange rate fluctuations. The NZD reflected similar weakness as seen by its global peers against the USD over the year. On October 13, 2022, NZD/USD rates fell to 0.5512 – their lowest level since March 2020.
Aggressive rate hikes by the U.S. Federal Reserve (Fed) and capital flight to safe havens like the U.S. dollar propelled the U.S. Dollar Index (DXY), which tracks the performance of the USD against a basket of major currencies to a 20-year high in September 2022.
More recently, the US dollar experienced “one of its deepest corrections of the year” on bets of a lower-than-expected rate hike in November and December by the Fed. As a result, the NZD posted its best monthly performance of the year against the USD – NZD/USD gained 3.9% in October.
The October rate hike by the RBNZ, which took interest rates in New Zealand to a seven-year high of 3.5%, also supported the rebound in the NZD.
The RBNZ is expected to maintain its pace of rate hikes as inflation in the country hit a 30-year high of 7.2%. The central bank’s target for the second quarter of 2022 is above the target range of 1% to 3%.
After making its sixth rate hike of the year on October 5, 2022, the RBNZ said:
“New Zealand’s production capacity is still constrained by labor shortages and wage pressures are intensifying. Overall, spending continues to outpace the ability to deliver goods and services, with a range of indicators continuing to point to widespread price pressures.
Daniela Hathorne, senior analyst at Capital.com, noted:
“The rate hike path for the RBNZ is firmly higher, with markets now pricing in a strong likelihood of a 75 basis point hike at their November 23 meeting. In fact, the latest inflation data has showed that prices continued to rise in the third quarter, and with consumer spending remaining robust, we are likely to see the central bank remaining hawkish for the time being.
As of November 2, 2022, NZD/USD was on track to post three consecutive weeks of gains at 0.586. However, year-to-date, the pair’s rate is still 14% lower.
Since the beginning of the year, the New Zealand dollar has lost more than 1% against the euro (EUR/NZD) and lost around 3% against the Australian dollar (AUD/NZD). It showed resilience against some other major global currencies, gaining around 9.9% against the Japanese yen (NZD/JPY) and almost 1% against the British pound (GBP/NZD).
New Zealand Dollar Forecast for 2022 and Beyond: Expert Commentary
Hathorne said the Kiwi is “well positioned to continue challenging the USD”, adding:
“The New Zealand dollar has been quite robust against the US dollar, probably one of the strongest over the last month or so, and that’s partly due to the RBNZ’s determination to control inflation without too much s focus on growth, resonating with the Fed.”
Westpac Institutional Bank expects NZD/USD rates to trend to 0.58 in December 2022, 0.65 in December 2023 and 0.66 in June 2024.
ASB Economics & Research said in its forecast for the NZD on November 1, 2022: “With the FOMC (Federal Open Market Committee) in bullish mode, the NZD top is limited and the NZD resistance of 0.5870 is unlikely. to be broken given the global risk profile, the low yuan context.
Trade economy saw the kiwi trade at 0.54 against the greenback in 12 months from November 2, 2022. The data company did not share the New Zealand dollar forecast for 2030.
Multinational bank HSBC said in a forecast for the New Zealand dollar that the AUD is likely to strengthen against the NZD as “Australia’s fundamentals look stronger than New Zealand’s on a relative basis, with less risk of hard landing and a stronger current account position”.
The National Bank of Australia saw AUD/NZD rates at 1.14 in December 2022. In its forecast for the New Zealand dollar for 2025, it said the pair could trade at 1.09 by the end of December 2022. end of the year.
Finally, economists at ING THINK said employment data from New Zealand was key data to watch. As noted on November 1:
“The labor market is expected to remain extremely tight, and particular attention will be paid to wage dynamics: evidence of slowing wage growth could dampen the good momentum of the New Zealand dollar. We continue to see downside risks for the AUD and NZD given the challenging risk environment and exposure to China’s economic woes.
The bottom line
If you are looking for a New Zealand Dollar forecast to inform your forex trading, it is important to remember that currency markets are highly volatile, making it difficult for analysts and algorithm-based forecasters to come up with accurate predictions. long-term. As such, analysts can and do get it wrong in their predictions.
We recommend that you always do your own research. Read the latest market trends, news, technical and fundamental analysis and expert opinions before making any investment decisions. Keep in mind that past performance does not guarantee future returns. And never invest money you can’t afford to lose.
FAQs
Is the NZD going up or down?
The direction of the New Zealand dollar will depend on a number of factors, including the outlook for the domestic economy and the RBNZ’s decisions on rate hikes.
Will the New Zealand dollar strengthen in 2023?
Whether the New Zealand dollar could strengthen in 2023 will depend on a number of factors, including the outlook for the domestic economy, international trade and the RBNZ’s decisions on rate hikes.
Is it a good time to buy New Zealand dollars?
Whether now is a good time to buy NZD depends on your personal situation, risk tolerance and the amount you intend to invest. You should do your own research to develop a view of currency as an investment. Keep in mind that past performance does not guarantee future returns. And never invest money you can’t afford to lose.
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