Analysts at Wells Fargo expect a moderate appreciation of the New Zealand dollar versus the greenback over time. They warn that recent events hint at a possible upside scenario, that could send NZD/USD to 0.80 over time. 

Key Quotes: 

“We expect the New Zealand currency to appreciate versus the U.S. dollar over the medium-term. After a back-and- forth economy during the second half of last year, the domestic economy has surged since the start of 2021 even as the country’s border remains largely closed to international travel. Against this backdrop the central bank has turned hawkish overall, and we now anticipate an initial rate hike during the first half of 2022. Given supportive growth and monetary policy fundamentals the medium-term outlook for the New Zealand currency is favorable, even with somewhat unsettled markets given hawkish Federal Reserve hints.”

“While we now expect an initial RBNZ rate hike in Q2-2022, it is possible a rate increase could come even earlier than that, which would also be supportive of the NZ currency. In this strong growth/rising interest rate scenario, the NZ dollar could gain close to $0.8000 over the medium term.”

“Financial markets have been unsettled in the wake of hawkish hints from the Federal Reserve. Should that period of market instability last longer than expected, that would likely weigh on the NZ dollar. Unsettled markets could also see commodity prices decline more significantly, which would be a negative for the NZ currency. One downside risk to the growth outlook is the ongoing and extended closure of New Zealand’s borders, which is hitting the key tourism sector very hard, and could restrain the NZ dollar. Should these risks transpire, the NZ dollar might not gain much beyond $0.7200 over time.”

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