Unavoidable consequences NZDUSD

2020 has been a year unlike any other that included the worst global crisis since the 1930s, a mesmerizing U.S election, and unprecedented fiscal and ultra-easy monetary support from central banks.

New Zealand

However this week the pledge by one central bank, the Reserve Bank of New Zealand (RBNZ) to keep interest rates at a low level for the foreseeable future came under threat, as the New Zealand Minister of Finance expressed concerns that low-interest rates were fuelling house price rises.

The theme of surging housing prices is not unique to New Zealand. An article in the FT earlier this month noted strong gains in property prices in Europe, the UK, and the U.S. Here in Sydney, casual conversation has again turned to some remarkable prices being paid for homes in Sydney and in the Byron Bay region.

Returning to New Zealand, the Minister of Finance proposed that the RBNZ should add house prices to the checklist it already balances, including inflation, employment, and the exchange rate.

Coming just a fortnight after a less dovish than expected RBNZ interest rate meeting, economists are now rethinking their forecasts for the RBNZ to take the Overnight Cash Rate (OCR) negative in 2021, despite still high levels of unemployment and sluggish growth.

All of which has propelled the NZDUSD above .7000c for the first time since June 2018. Providing yet another headwind to a New Zealand economy more dependent than ever on revenue from its export sector as international borders remain closed to tourism and overseas students.

As can be viewed on the monthly chart below, should the NZDUSD close this month above resistance at .7000c there isn’t too much in the way of medium-term resistance until .7500c - a story for 2021.

In the shorter term, the NZDUSD looks set for a test of .7200c into year-end. As such, we favour buying corrective pullbacks in the NZDUSD in coming sessions, ideally back towards .6900/80. Keeping in mind, it would take a break and close back below .6780c to suggest the rally has faltered.

Unavoidable consequences NZDUSD

Source Tradingview. The figures stated areas of the 27th of November 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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