26.05.202113:50 Forex Analysis & Reviews: Will the New Zealand dollar rise after the RBNZ meeting?

Many analysts are confident that the New Zealand dollar will increase after the RBNZ meeting. Experts emphasized that there is a significant space for the NZD to rise, which could take the chance.

At the beginning of this week, this currency rose relative to strong macro statistics and successfully continued the positive trend. The New Zealand Bureau of Statistics reported that total retail sales rose by 2.5% in the first quarter of 2021, and surged to 6.8% on a quarterly basis excluding car sales. Experts were also pleased with New Zealand's decline in the unemployment rate (to 4.7%) and the rise in inflation (to 1.5%), which is approaching the target level of 2%.

Experts believe that the dynamics of the New Zealand dollar looks more advantageous than the positions of its American counterpart. They emphasized that the long-term weakness of the US dollar affects its dynamics. Against this background, many commodity currencies, including the NZD, have won. New Zealand dollar is supported by the positive dynamics in the global hydrocarbon market, which favors its export-oriented economy. Economists estimate that commodity currencies have enough room to grow. This is facilitated by factors such as the confident economic recovery of the world, the rise in oil prices, and the maintenance of soft monetary policy by most central banks.

Moreover, experts' expectations regarding the preservation of the current monetary policy by the Reserve Bank of New Zealand (RBNZ) also add significant support to the currency. Market participants believe that the regulator will leave the interest rate at 0.25%. According to currency strategists at Citi Bank, no special surprises are expected from the RBNZ. Analysts expect the weak USD to remain in the medium term, against which the NZD/USD pair will strengthen its positions. This year, Citi bank expects the instrument to rise to the level of 0.7500 and higher. On Wednesday morning, the NZD/USD pair was trading at 0.7307, trying to break through the borders of the current range.

Following the meeting of the Reserve Bank of New Zealand, experts expect to maintain the target for a large-scale asset purchase program near 100 billion New Zealand dollars. As for the timing of the procurement program, they believe that it will last until June 2022. At the upcoming meeting, the regulator will provide updated economic forecasts, which will include strong GDP data and an improved forecast for the level of inflation. Experts admit that there may be a "hawkish" bias in the RBNZ's rhetoric at the same time.

RBNZ representatives said that it will be necessary to slightly reduce the rate of the NZD for a stable economic recovery and higher inflation. It is possible that Adrian Orr, Governor of the RBNZ, will reaffirm the bank's commitment to a soft monetary policy. In such a situation, analysts warn that the pressure on the New Zealand dollar will increase But if the hawkish rhetoric about the prospects for monetary policy intensifies, it will reverse and strengthen sharply.