NZD downside will persist for now – MUFG

After a solid start to the year, NZD/USD reversed course in February and wiped out all the year-to-date gains and some more. Economists at MUFG Bank expect the Kiwi to remain under pressure for the time being.

Over-tightening fears could come to undermine NZD

“While the RBNZ maintained its view that the policy rate would need to be raised to 5.50%, Governor Orr stated that the RBNZ was in a ‘more flexible position’ – this points to the potential for a slowdown in the pace of tightening to 25 bps moves, which we believe lowers the prospect of reaching the 5.50% level.” 

“The housing market continues to suffer from the tightening already implemented. Still, evidence of weakness in other areas of the economy is not as clear and hence further hikes seem likely.” 

“NZD downside will persist for now reflecting broader risk aversion and when the US Dollar begins to weaken again more broadly, NZD may underperform AUD as such aggressive tightening hits the economy.”

“NZD/USD  – Q1 2023 0.6200 Q2 2023 0.6300 Q3 2023 0.6400 Q4 2023 0.6600”

“AUD/NZD – Q1 2023 1.0970 Q2 2023 1.1110 Q3 20231.1250 Q4 2023 1.1210”