If you’re fond of technical analysis, you probably know that the NZD/USD is sensitive to changes in the US economy and the European Central Bank. The NZD/USD forecasts the continuation of the current global economic slowdown. Economic activity around the globe has been slow for the past two years. While there are signs of economic improvement in some parts of the world (including Canada and the United States), in many countries (particularly the euro area and Japan), growth is anaemic. In addition, the 2021 summer budget put a few things in the red (deficit) for the New Zealand economy, which led to a marked slowdown in domestic spending. This probably means that the Reserve Bank of New Zealand (RBNZ) will keep the interest rate near its record low as a way to head off any possible inflationary pressures in the future.
A key current event that could have a significant effect on the NZD/USD outlook is the expected slowdown in China. The current trend in the Chinese economy is towards more state-controlled financial flows and the tightening of credit. The outcome of these events could exert a strong pull on the New Zealand dollar. It is also noteworthy that this is the first time that the New Zealand dollar has been forecast to contract since July 2021.
An important consideration in interpreting the NZD/USD forecast is whether or not the economy of New Zealand will experience a period of strong growth. The main indicators to watch for include the opening and closing markets for the New Zealand dollar. Should trading continue as suggested by recent trends, then it is likely that the New Zealand economy will experience continued economic growth. Should the trading action reverse and the New Zealand dollar begin to weaken, then it is likely that the economy will contract. This is why it is important to keep an eye on the NZD/USD during this period and ensure that it remains within a defined range.
If the above analysis is correct and trading continues as it should, then the outcome of the upcoming US presidential election will most likely have a large bearing on the NZD/USD. The current trading momentum is suggesting that either Hillary Clinton or Ted Cruz will be elected president. The prospect of either of these two reaching the executive chairmanship is excellent news for the New Zealand economy. As it weakens the New Zealand dollar further, it is likely that political stability will be enhanced. As it fails to clear the opening range for the August low (0.6805), which might turn out to be a correction away from the top, it is likely that the August low will be followed by a recovery in the New Zealand dollar.
Should the US election result be negative for either candidate, then the NZD/USD outlook confined to the period leading up to the election will be unaffected. However, if one of the candidates does win and the forecasted bounce back effect is seen, then a recovery is possible in the New Zealand economy. There is, however, one potential caveat to this. Should Hillary Clinton win, but the forecast for the New Zealand economy is rather dim, then the NZD/USD could overshoot its break-out level and subsequently become a safe haven for investors.
If Hillary Clinton were to lose the US election, then there would be a significant correction in the New Zealand economy, with the NZD/USD potentially coming under pressure and then coming back stronger. The New Zealand economy is characterised by slow growth, high inflation, low employment and rising unemployment. Inflation has been a problem in New Zealand because of the high level of global currency exchange rates, which have been driven up by the strength of the New Zealand dollar.
The recent uptrend in the New Zealand dollar mirrors international economic indicators and includes a marked acceleration in the trading interest rate policies. The current uptrend is being driven by an elevated unemployment rate, high inflation and low global trade. It is expected that economic policy related to rates will remain uncertain until september or till the election of a new government. This uncertainty is likely to lead to a period of consolidation, which is likely to continue into the second half of this year.
The current New Zealand dollar outlook indicates that it will most probably experience an above average pace of appreciation this year, but it will likely slow down or even moderate at the onset of the summer. The first indicators of the tightening cycle include the announcement of a USD deal with the European Central Bank and evidence that the Bank of New Zealand raised rates by a quarter point. This move came as a surprise to many New Zealanders who had expected that the Reserve Bank of New Zealand would wait until the onset of the summer season in order to raise rates. This sudden move is said to have pushed the New Zealand economy into a consolidation phase. The tightening of the credit and monetary policy and the Reserve Bank’s move is being viewed as a signal that New Zealand is facing some form of global recession. However, this is still only a projection, as the real effects of the changes will only be felt after the fall. Although the Reserve Bank of New Zealand has stated that the recent changes are being considered a technical evaluation only, it would be surprising if this is not a correct assessment. Based on the overall performance of the New Zealand economy, a break out in the foreign exchange rate is expected at some stage in the year. Although this is unlikely, an increase in the NZD will occur, which will be driven by domestic spending and income increases. In addition, a consolidation phase has been indicated by the Reserve Bank, which will probably last from late 2021 through the start of 2021. If these indicators are borne out, then we could see a continuation of good gains in the New Zealand dollar until the onset of the next major global economic financial crisis.