NZD/USD drops back to 0.7100 as NZIER trims economic forecasts on covid concerns

NZD/USD takes offers around 0.7100, down 0.13% intraday, during early Monday. In doing so, the kiwi pair reacts to the downward economic revision by the NZ Institute of Economic Research (NZIER) as well as weaker sentiment data from the Australia and New Zealand Banking Group (ANZ).

As per the latest NZIER forecasts, “The latest community outbreak of COVID-19 is likely to have driven these revisions, as the recent lockdown reduces economic activity for the coming year. However, the expectation is for a rebound in demand from 2022. There is a wider than usual range of forecasts for the growth outlook, partly reflecting the difference in timing when forecasts were finalized.”

NZIER expects inflation to remain inside the Reserve Bank of New Zealand’s target range of 1-3% range before moderating higher towards 2.0% mid-point. The think tank also revised down near-term GDP forecast but keeps saying, “Annual average growth in GDP is forecast to remain at 4.5 percent for the year to March 2023.”

On the other hand, the preliminary data for September month’s ANZ Business Confidence and Activity Outlook also came in mixed versus the August month’s figures. While the Business Confidence recovered to -6.8 from -14.2%, Activity Outlook eases from 19.2 to 18.2.

It should be noted that the upbeat market sentiment, backed by chatters over US stimulus, Iran and the easing of the Sino-American tussles, challenges the NZD/USD bears.

That said, the S&P 500 Futures rises 0.25% intraday whereas the US 10-year Treasury yields remain sidelined around 1.338% by the press time.

Amid a lack of major data/events, virus-led challenges at home can stop NZD/USD from cheering the mildly positive sentiment.

Technical analysis

Unless providing a daily closing below 100-DMA level of 0.7080, NZD/USD remains capable to challenge the monthly top near 0.7175.