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Forecast for NZDUSD for 26 August 2020

August 26, 2020

August 26, 2020

Forecast for NZD/USD: who will trust in kiwi?Dmitri Demidenko

Fundamental oil forecast for the NZ dollar for today

Betting on outsiders is risky, but nothing ventured, nothing gained

One of the main investment principles says: Buy cheap and sell high. The New Zealand dollar is the worst performer in the G10 group, but the country’s economy can’t be called “a disaster.” So, the obvious question is whether the NZ dollar is cheap. If it is, traders have an excellent opportunity to buy the underestimated asset.

Until recently, the whole world would envy New Zealand: there hadn’t been any new Covid cases for 102 days. Unfortunately, the pandemic is back, and Jacinda Ardern’s government had to lock down Auckland until 30th August. Westpac estimates that the largest city’s lockdown cuts GDP by NZ$300 million a week, approximately. At the same time, most losses will be clawed back fast after the lockdown is lifted. The Reserve Bank believes that GDP reduced by 14.3% in Q2 and will grow 12.2% in Q3. At August’s meeting, the regulator expanded the QE from NZ$60 to NZ$100 and announced it is ready to introduce negative rates if needed. After that dovish rhetoric, the forward market expected that the cash rate would have been cut by 40 base points by July 2021, which became the main factor in kiwi’s depreciation.

Wellington is exaggerating the scale of distress. Everything is comparative, and New Zealand’s situation around Covid-19 is better than the US one. The Reserve Bank is ready to cut rates, if necessary, but it believes in a bright future, forecasting that the cash rate will remain at the level of 0.25%.

Dynamics of US and NZ coronavirus cases

![LiteForex: Forecast for NZDUSD for 26 August 2020][1]

Source: Trading Economics.

Remember that New Zealand’s leading trade partner is China, whose economy has been recovering fast after the pandemic. According to JP Morgan, China’s GDP will grow by 2.5% in 2020, while its American peer will lose 8-9%. The talks between Washington and Beijing reduced the possibility of a new trade war, which will allow China’s economy to get back to the trend fast. Unlike Canberra, Wellington doesn’t have any diplomatic issues with Beijing, so the latter will hardly initiate anti- dumping inquiries.

GDP estimates for China, World, and Advanced economies

![LiteForex: Forecast for NZDUSD for 26 August 2020][2]

Source: Wall Street Journal.

Along with the exaggerated concern about New Zealand’s economy and the fast recovery of China’s GDP, there’s one more factor that indicates kiwi’s underestimate: growing milk prices. According to January Innovation, California’s heatwave may cut US milk output by 10%.

NZD/USD and milk prices

![LiteForex: Forecast for NZDUSD for 26 August 2020][3]

Source: Trading Economics.

I think the New Zealand dollar is currently underestimated. Given the local economy’s and the Chinese economy’s recovery, and the commodity market’s favorable state, I’d recommend opening long positions in [NZD/USD][4] at retracements with medium-term targets at 0.68 and 0.7.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of NZDUSD in real time mode

![Forecast for NZD/USD: who will trust in kiwi?][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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