- NZD/JPY reports losses as New Zealand's government forecasts significant economic deterioration.
- The jobless rate is seen rising to 9.8% by September, according to the 2020 budget statement.
- The risk-off tone in the global markets is adding to bearish pressures around the NZD.
NZD/JPY looks set to extend losses as the New Zealand government's budget 2020 statement released a few minutes before press time showed the officials expect a sharp fall in economic activity and a substantial rise in unemployment.
"New Zealand’s real GDP growth rate is forecast to decline from 2.8% in the year ending June 2019 to -4.6% in the year ending June 2020, driven by a quarterly decline in GDP of over 20% in the June 2020 quarter," the budget statement said.
Meanwhile, officials expect the jobless rate to jump to 8.3% in the year ending June 2020 and peak at 9.8% in September 2020.
The dismal forecasts are not surprising, given the economic activity came to a standstill in Mach and April due to the coronavirus outbreak. That said, the significant deterioration in both the growth rate and labor market could put pressure on the Reserve Bank of New Zealand to implement negative rates. The central bank cut interest rates to 0.25% in March and launched a large scale asset purchase program.
Westpac thinks the central bank would cut rates below zero in November. The central bank, too, has said that negative rates could become an option in the future.
The NZD bulls, therefore, are likely to stay on the sidelines, more so, as the broader market sentiment has worsened in the last 24 hours due to Federal Reserve Chairman Jerome Powell's warning of long and painful economic downturn. Also, prominent investors like Stanley Druckenmiller raised questions about the market’s current valuation, adding to downside pressures around the US and global equity markets.
The NZD, being a growth-linked currency, tends to put in a negative performance during bouts of risk aversion in global markets.
The NZD/JPY pair is currently trading at 63.88, representing a 0.28% decline on the day. The pair fell from 64.25 to 63.85 during the 60 minutes to 02:00 GMT and extended losses to hit a session low of 63.79 following the release of New Zealand's budget.
Technical levels
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