Top 2023 Trade: Long NZD/USD – Kiwi Backed by Fundamentals as Monetary Policy Reigns
In the wake of higher interest rates and slowing
growth
, the safe-haven Dollar gained against most major counterparts before losing traction in Q4. With the strong greenback driving
NZD/USD
to a low of 0.551 in early October, expectations of a Fed pivot fueled a rebound which allowed Kiwi to retest 0.65.
Despite a softer 50 basis point
rate hike
being announced at the December
FOMC
, commentary from Jerome Powell suggested that interest rates will likely remain elevated for the duration of 2023.
Although this rhetoric continues to support
US Dollar
strength, the next quarter could see the
New Zealand Dollar
outperform in this regard.
While both major central banks remain committed to taming
inflation
through restrictive monetary tightening, RBNZ (Reserve Bank of New Zealand) is expected to continue hiking at a more aggressive pace.
For the New Zealand economy, recent GDP figures suggested that growth remains robust which could allow the Central Bank to continue to tighten further.
In Q1, 2023, recession risks, inflation and China’s reopening will likely assist in driving the broader economic outlook.
If NZD/
USD
can gain traction above 0.65, further upside momentum could drive Kiwi back towards mid-point of the 2009 – 2011 move at 0.687. If this zone of resistance is broken, it could be possible for the pair to retest the April 2022 high at 0.703.
NZD/USD Monthly Chart
Chart prepared by
Tammy Da Costa
using TradingView
However, as the weekly chart highlights additional zones of support and resistance that could contribute to the next quarter’s move, imminent support holds at 0.620. If NZD/USD breaks below this zone, it is possible for prices to experience further declines.
NZD/USD Weekly Chart
Chart prepared by
Tammy Da Costa
using TradingView
