NZD/USD: Kiwi to strengthen on back of less dovish RBNZ - MUFG

FXStreet notes that the New Zealand dollar weakened very marginally against the US dollar from 0.7198 to 0.7194 in January. In the view of economists at MUFG Bank, the kiwi is set for advance in 2021.

“The New Zealand dollar advanced notably in the final two months of 2020, by 9.0%, which points to the potential for consolidation, or even correction lower, in the early part of this year. But currency support has prevailed to limit the downside given the global growth backdrop remains broadly stable.” 

“Some uncertainties persist over the course the COVID-19 virus will take but New Zealand has continued to be successful in sheltering itself from the rest of the world. The faster recovery in NZ due to successful management of coronavirus will inevitably leave investors more sensitive to inflation risks going forward.”

“New Zealand GDP has already surpassed the pre-COVID peak so the spare capacity argument for aggressive monetary easing will dissipate as this year unfolds. The RBNZ will hold off on a communication change for as long as possible but investors are likely to increasingly speculate on a sooner shift in policy away from easing by the RBNZ which will provide the NZD with support.”