Growing risk appetite, record high immigration, and potential divergence in the Reserve Bank of NZ’ and the Fed’s policies are a foundation for the NZDUSD’s uptrend. Let’s discuss it and make a trading plan.

Six-month fundamental forecast for the NZ dollar

New lords, new laws. The new New Zealand government announced it would start the legislative process to return the central bank to a single mandate, and the RBNZ’s reaction was immediate. It kept the cash rate at 5.5% in November but surprised the markets, saying the rate would be raised in the future. If the bank’s employment mandate is removed so that employment rates are no longer considered in monetary policy, inflation will be treated with more aggression, which is good for NZDUSD.

When CPI is near target and inflation expectations are anchored, central banks can look at things from the outside and wait for the right time. The RBNZ doesn’t have that privilege. Consumer prices grew by 5.6% in Q3, and Governor Adrian Orr fears that record immigration growth will accelerate inflation as house prices and rents rise.

Immigration trends and forecasts

Source: Bloomberg.

NZ’s population increased by 2.7% from January to September, the best dynamics in over 30 years. At the same time, net annual immigration jumped to a record 118.8 thousand people. The indicator is growing much faster than RBNZ forecasts. If previously the central bank believed positive immigration dynamics would increase the workforce’s size and help reduce wage and inflation growth, now its opinion has changed. The focus is now on rents and house prices, which makes Adrian Orr a hawk.

The bank’s updated forecasts now see the cash rate grow to 5.7% and don’t expect borrowing costs to drop before mid-2025. If we also consider market forecasts for the Fed’s, the ECB’s, and other banks’ monetary expansion in 2024, we’ll see that the divergence in monetary policy will soon be underway, pushing the NZDUSD upwards.

Reserve bank’s forecast for core interest rate

Source: Bloomberg.

It’s worth mentioning that the RBNZ is worried not only about record immigration and the growth of house prices and rents but also because the effect of aggressive monetary restrictions has already been exhausted. In the current cycle, the cash rate has grown by 525 basis points since October 2021. Initially, the economy began to cool, but there are signs of a thaw now. 

NZDUSD’s 6.5% rally from its October lows would not have happened without the rapid growth of global stock indices, which showed their best performance in three years.

That strengthened global risk appetite and became a tailwind for high-yield currencies. As a result, the Kiwi was the second-best G10 performer in November after the Swedish krona.

Six-month trading plan for the NZDUSD 

The NZDUSD could pull back amid an eventual correction of the S&P 500, allowing us to open medium- and long-term longs. I expect the NZD to reach $0.64 and $0.66 in 3 and 6 months. My advice is to buy.

Price chart of NZDUSD in real time mode