The New Zealand dollar has reversed directions on Wednesday. Currently, NZD/USD is trading at 0.7219, down o.28% on the day.
New Zealand can consider itself very fortunate on the Covid-19 front, as it has done an excellent job in containing the pandemic. The strict lockdowns in response to Covid came with a steep price tag, however, as the economy fell into a recession last year. Still, the economy has rebounded in impressive fashion. The recovery has been so successful that the country is now having to deal with some “good old days” problems that reflect economic conditions prior to Covid. These are the type of problems which many countries, struggling with the pandemic, would love to have.
The first issue is that of the RBNZ’s future monetary policy. Last year’s economic downturn led to speculation that the RBNZ might resort to negative interest rates. Fast forward to early 2020, and the market buzz is when might the central bank hike rates. This will probably not occur before 2023. A more pressing issue is what to do with the current QE scheme. The RBNZ has pledged to purchase up to NZD 100 billion, under the large scale asset purchase (LSAP) programme. There is really no room for a serious discussion about the timing of a rate hike before the bank terminates is QE program. If policymakers were to taper QE, this could be interpreted as a step towards raising rates, which would be bullish for the New Zealand dollar.
RBNZ clamps down on housing market
Another problem stemming from the strong economy is an overheated housing market. With housing prices climbing sharply, the government is taking steps to deter speculators, who are looking to profit from even higher house prices. The RBNZ announced on Tuesday that it will reintroduce mortgage lending restrictions in order to reduce demand and avoid a sudden burst of the housing bubble.
- 0.7240 is a weak resistance line. Close by, there is resistance at 0.7277
- There is support at 0.7150. Below, we find support at 0.7097
- The 50-day moving average (MA) remains relevant, at 0.7145
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