New Zealand Dollar Forecast Upgrade at ASB, Losses Seen from Mid-year

• NZD/USD can gain near-term
• Ahead of broader decline over medium-term
• GBP/NZD can rise back above 2.0 in 12 months
• NZD/EUR could be at 0.5566 in 12 months
• NZD/AUD to fade to 0.8939

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The New Zealand Dollar is likely to rise over the first half of 2023 by foreign exchange analysts at one of New Zealand's main lenders as analysts announce an upgrade to their New Zealand Dollar forecasts.

However, analysts at the Auckland-based bank ASB say the overall profile remains the same: a rise in the near term ahead of a more sustained trend lower over the medium term, leaving the Kiwi lower than current levels by the end of March 2024.

Nathaniel Keall, an economist at ASB, says further NZ Dollar strength looks like a realistic prospect from here as global trends and a 'hawkish' Reserve Bank of New Zealand (RBNZ) provide impetus.

"A patch of improved risk sentiment courtesy of China’s reopening and a less pessimistic global growth outlook should be a boon for NZD," he says in a recent financial research briefing.

The New Zealand Dollar has rallied at the time of writing courtesy of a rise in global equity markets as it displays its trademark response to optimistic investor sentiment.

Therefore, the Kiwi would likely rally should global sentiment continue to improve.

The New Zealand Dollar and global markets fell on Friday, February 04 when an unexpectedly strong U.S. jobs report cast doubt on the U.S. Federal Reserve's intentions to exit its interest rate hiking cycle.

It is expectations for an end to the hiking cycle that has underpinned a market rally - and NZD recovery - from late-2022 through early-2023.

But these fears have faded somewhat over the subsequent days on the back of soft data and guidance from Fed speakers that suggests the jobs numbers are no game-changer.

"Ultimately, it's the Fed that is signalling a slowdown in the pace of hikes at the same moment the RBNZ is front-loading further monetary tightening," says Keall.

"In sum, yield differentials are likely to be favourable to the NZD in the near term," he adds.

Above: GBP/NZD (top) and NZD/USD at daily intervals. Consider setting a free FX rate alert here to better time your payment requirements.

Keall says better sentiment should also help NZD head higher against the safe-haven Yen and hold its ground against the British Pound and Euro.

But near-term gains are predicted to ultimately give way to a more protracted decline in the Kiwi's value.

"Our new forecasts still have NZD/USD heading lower over the medium term given a variety of structural factors. NZ's current account deficit sits at multi-decade highs around 8% and is likely to widen further over the coming quarters before it closes," says Keall.

"NZD's greater risk sensitivity should also see it underperform against JPY, EUR, and GBP over H2 2023," he adds.

Given these views, ASB and Commonwealth Bank of Australia (ASB's owner), forecast the New Zealand Dollar-U.S. Dollar exchange rate (NZD/USD) to trade at 0.6750 by the end of March.

It then moves to 0.6600 by the end of June, 0.6300 by the end of September, 0.5900 by year-end and 0.5900 by the end of March 2024.

This is up from the previous forecasts for these time points of 0.5200, 0.5500, 0.5700, 0.5800 and 0.6000.

Spot is currently seen at 0.6347.

ASB's Pound to New Zealand Dollar exchange rate's (GBP/NZD) forecast profile is: 1.8667, 1.8786, 1.9048, 2.00 and 2.0338. This is down from the previous forecasts of 2.1155, 2.0362, 2.01735, 2.0346 and 2.0.

Spot is currently seen at 1.9150.

For NZD/AUD the bank's new targets are set at 0.9122, 0.9167, 0.9000, 0.8676 and 0.8939. Previously the targets were 0.8814, 0.8871, 0.8769 and 0.8657.

Spot is currently seen at 0.9120.

The NZD/EUR forecast profile is 0.5973 by the end of March, 0.5739 by the end of June, 0.5676 by the end of September, 0.5463 by year-end and 0.5566.

The previous forecast profile was: 0.5591, 0.5729, 0.5816, 0.5743 and 0.5769.

Spot is currently seen at 0.9120.

ASB's predictions come as fellow Kiwi bank BNZ looks for the New Zealand Dollar's recent rally to fade in the near term.

BNZ says ahead of a recent pullback in the currency it was looking "a little richly priced" and "was due for some consolidation after a strong run".

"We could well be heading for a couple of months of volatile trading and little progress being made on the NZD’s recovery. The strong US data challenges the prevailing narrative for the year of the US losing its growth-leadership status," says BNZ currency analyst Jason Wong.