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NZD/USD: What’s in store for the kiwi?

The New Zealand dollar against the U.S. dollar is facing a critical fundamental event tomorrow: RBNZ’s Interest Rate decision. New Zealand has been fortunate that the government’s decision to go “hard and fast” has meant citizens have had relative freedom through Christmas and New Years’.

NZD/USD eying out RBNZ meeting

The NZD/USD is currently sitting at around 0.732, up around 1.37% over the past week. Bulls are looking for positive signs to take the pair 0.74 and higher, such as a lifting in the extraordinary bond purchases the RBNZ is engaging in.

NZD/USD Looking At Key Levels

New Zealand was also in a fortunate position that many of the country’s citizens could afford. A lockdown and was employed through the lockdown.

With a mix of government support alongside jobs that enabled work from home, many citizens were in a position to save during the lockdown periods. Pair this with the Reserve Bank of New Zealand, removing loan to value ratios to stimulate the economy, and we have a legendary demand and house price increases across the board as investors and first home buyers take advantage of easy borrowing.

However, the RBNZ has realized that the temporary lifting of the loan-to-value ratio has done its course. They recently announced that they would place these restrictions back, requiring investors to have at least 40% of the house price they want to purchase as a deposit.

NZD/USD looking at any possible rate change

Now, analysts are looking at whether the RBNZ will translate viewpoint into monetary policy. As it stands, analysts predict the RBNZ to hold rates as is at 0.25%. If so, it is likely to state that they will be willing to keep rates well into 2022. A sudden rake hike makes signals the RBNZ may be more bullish on the New Zealand economy. Stephen Toplix, head of research at Bank of New Zealand in Wellington, stated that the RBNZ “simply must be less dovish” than it was in November because inflation has portrayed a more robust.. economy than was expected.”

To be clear, house prices and housing demand are not an exact bearing of economic growth. Nor is it a mandate for the Reserve Bank of New Zealand. However, rampant leveraging in higher loan-to-value ratios implicitly affects an order the RBNZ does preside over: employment. To RBNZ, riskier loans place higher pressure on borrowers to make higher payments, possibly putting them into a position of insolvency from the smallest change in their financial conditions.

NZD/USD – A pair to watch tomorrow.

Author

Kyle Quindo

Kyle Quindo

Blackbull Markets Limited

Kyle is a Research Analyst with BlackBull Markets in New Zealand. He writes articles on topical events and financial news, with a particular interest in commodities and long term investing.

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