NZD/USD, NZD/JPY Forecast: RBNZ Rate Patience Under Pressure

Summary

The New Zealand dollar (NZD) is currently supported by a favorable macroeconomic environment, characterized by advantageous rate differentials, a strong risk appetite, and robust performance in Asian markets. The latest ANZ Business Outlook survey reinforces this positive outlook, although it complicates the Reserve Bank of New Zealand's (RBNZ) interest rate strategy.

NZD/USD is in a consolidation phase following a breakout in January, maintaining a broader bullish bias. Meanwhile, NZD/JPY has seen a bullish breakout, but the lack of follow-through buying raises questions about the sustainability of this trend.

ANZ Survey Insights

The ANZ New Zealand Business Outlook for February presents a mixed picture that challenges the RBNZ's narrative of disinflation. While confidence and activity indicators remain strong, inflation readings suggest that the RBNZ may need to reconsider its timeline for interest rate hikes. The survey indicates that a significant number of firms plan to raise prices, with inflation expectations rising to 2.93% and cost pressures remaining high.

RBNZ Rate Outlook

Despite the survey's implications, the current pricing in the rate markets reflects skepticism about imminent RBNZ rate hikes, with only modest probabilities assigned to potential increases before the end of the year. The RBNZ's cautious approach, particularly ahead of the upcoming New Zealand elections, may be contributing to this sentiment. However, the recent data suggests that the risks of an earlier rate hike may be increasing.

Market Dynamics

The outlook for the NZD is heavily influenced by both domestic rate expectations and global risk sentiment. Recent resilience in cyclical assets and strength in Asian markets have bolstered demand for the NZD, indicating that external factors are playing a significant role in its price movements.

Technical Analysis

NZD/USD

NZD/USD is currently consolidating within a bullish pennant formation after a breakout in January. The price is coiling between resistance and support levels, with .6000 being a key focal point. Momentum indicators suggest a potential shift towards higher prices, although confirmation is still pending.

NZD/JPY

For NZD/JPY, the price has broken above resistance at 92.86, increasing the likelihood of a retest of earlier highs. However, the recent breakout appears stretched, and traders may look for a retracement to the 92.86 level for better entry points. Key support levels to watch include 92.00, which intersects with the 50-day moving average.