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NZ Dollar Robust Despite Worsening Economic Outlook

June 18, 2018 at 13:08 by Vladimir Vyun

All NZD denominationsThe New Zealand dollar gained on its most-traded rivals today, though not on the extremely strong euro. Such good performance was surprising, considering the risk-off market sentiment and the worsening outlook for New Zealand’s economic growth.

The NZ Institute of Economic Research released its Consensus Forecast today. The NZIER revised the forecast for New Zealand’s economic growth in 2018 from 2.9% to 2.8%. The next couple of years also received negative revisions, though the New Zealand economic growth is still expected to accelerate before peaking in 2020. The report explained the worsening outlook:

Weaker forecasts for exports drive much of this downward revision in the near term. From 2019, expectations of weaker growth in investment explain the softer growth outlook.

The NZIER also predicted depreciation of the New Zealand dollar:

Although the NZD has surprised on the upside, expectations remain for a depreciation through to 2021.

The US Federal Reserve is expected to continue lifting interest rates over the coming year. In contrast, the RBNZ is expected to keep the OCR on hold until at least the middle of next year. This should reduce the yield attractiveness of the NZD, and hence weigh on the currency.

NZD/USD rose from 0.6925 to 0.6951 as of 13:00 GMT today. NZD/JPY gained from 76.62 to 76.68 after falling to 76.36 earlier. At the same time, EUR/NZD was up from 1.6678 to 1.6699, though retreated from the daily high of 1.6740.

If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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