TSX runs higher on rate cut expectations
Citi analysts provided insights into the expected movements of currency pairs involving the New Zealand dollar (NZD), in light of the Reserve Bank of New Zealand’s (RBNZ) recent monetary policy actions.
The RBNZ’s 50 basis point rate cut on February 19 is likely to be followed by continued monetary easing, as the New Zealand economy shows weaker employment and inflation figures compared to Australia, highlighting diverging policies between the RBNZ and the Reserve Bank of Australia (RBA).
Citi anticipates the Australian dollar (AUD) to strengthen against the NZD, projecting the AUDNZD pair to gradually climb to and potentially exceed NZD1.12/AUD. The forecast comes amid the RBNZ’s looser monetary stance, which contrasts with the RBA’s policy direction.
The analysts expect the NZD/USD to trade within a narrow range, maintaining levels between NZD0.56/USD and NZD0.58/USD for the time being.
Regarding the NZD against the Japanese yen (JPY), Citi sees a downside risk. The 100-day moving average, currently at approximately ¥89/NZD, has historically been a crucial level for the NZDJPY pair.
Based on past trends, the lower limit of the –2.5σ band, around ¥84.5/NZD, could signal a short-term correction. However, should the pair drop below this threshold, the downside could extend to around ¥79/NZD, according to the analysts.
Citi’s analysis suggests that the NZD could face challenges against both the AUD and JPY, influenced by the RBNZ’s monetary easing relative to the economic fundamentals of New Zealand compared to its counterparts.
The currency movements are expected to unfold gradually, with the NZD/JPY pair particularly susceptible to a significant downturn if it breaches critical support levels.
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