The New Zealand dollar is experiencing an unusual rise along with other commodity currencies. The current week turned out to be favorable for the Australian dollar. According to analysts, this trend will continue in the near future.
The sharp growth of the NZD was facilitated by powerful factors such as the Reserve Bank of New Zealand (RBNZ) keeping the key rate at the same record low level of 0.25% and positive macroeconomic statistics. It can be recalled that the volume of retail sales in the country rose by 3.3% in the second quarter of 2021 after an increase of 2.8% a quarter earlier. As for retail sales excluding cars, they surged by 33.3% during the reporting period after the past growth of 6.6%.
The current situation inspired the New Zealand dollar, contributing to its further growth. It has made an upward turn, although it was contemplating last week. The NZD was threatened by a decline amid the spread of a new delta strain of coronavirus and high inflation. By the end of last week, the NZD/USD pair fell by 3.2%, namely to the level of 0.6815. But on Monday, the situation improved: the New Zealand dollar strengthened, and the pair returned to high indicators. On Wednesday, the NZD/USD pair was trading near 0.6948, successfully going beyond this range from time to time and receiving support from the weakened US dollar.
Many experts called the NZD and other commodity currencies the leaders of trading at the beginning of this week. It is supported by fundamental economic factors that are closely intertwined with the epidemiological situation. However, the spread of the new COVID-19 strain did not prevent the RBNZ from curtailing incentive programs, unlike other central banks. According to analysts, the New Zealand regulator, along with the Canadian one, is considered one of the "hawkish" central banks in the world. Its actions are conditioned by economic expediency.
A balanced long-term decision was to keep the RBNZ interest rate at the same level. According to the representatives of the regulator, the only thing that prevents raising rates is the quarantine against the background of COVID-19. But Christian Hawkesby, Assistant Governor of the RBNZ, stated that the central bank allows the rate to rise immediately by 50 basis points (bp) after some time.
The situation that has developed with the spread of the delta variant is capable of bringing down the NZD/USD pair. Based on Westpac economists' calculations, the pair may fall to the level of 0.6700. Experts note that the NZD/USD pair will most likely fall to the level of 0.6700 if a negative situation occurs in the currency market and increased epidemiological measures.
The local outbreak of COVID-19 last week sharply turned the market's expectations for the RBNZ. Now, the probability of a rate hike in October is only 50%. At the same time, the yield spread between New Zealand and the United States has shifted from supporting the New Zealand dollar to having a negative impact on it. The lockdowns related to COVID-19 worsened the situation. Westpac emphasizes that if the obstacles last for several weeks, the forecast for the NZD/USD pair at the level of 0.7400 by the end of the year will be under threat of decline.
Despite the current problems, the New Zealand dollar is not discouraged and is ready to rise again. Such confidence is given by positive data on the country's trade balance. It should be noted that experts have recorded its surplus for several months. The strengthening of this indicator is caused by the steady demand for exports from New Zealand. Analysts are sure that this has a positive effect on the dynamics of the NZD. Another increase in the surplus, even a short-term one, will strengthen the position of the specified currency in the global market.