NZD/USD: To gain support from RBNZ - CIBC

Analysts at CIBC see a gradual recovery in the months ahead for the NZD/USD pair. They forecast it at 0.70 by the end of the first quarter of next year and at 0.71 by the second quarter. 

Key Quotes: 

“The RBNZ was amongst the first major central banks to begin monetary policy normalisation. Despite some initial support for the NZD, the outlook for the currency is now caught between support from higher yields and concerns that tighter policy will eventually be a headwind to activity.”

“We expect the RBNZ to continue hiking the cash rate through until 2023, based on the latest bank projections. Rate differentials should therefore be one factor in favour of the currency.”

“The question that now arises however, is when the monetary tightening becomes restrictive and activity slows. That looks to be a challenge for 2H 2022. Until that time, the expanding differential between New Zealand and other major economy yields, will support NZD gains.”

“NZD support against the USD is expected in the early months of the year as the initial pace of RBNZ hikes outpaces the Fed.”