BofA Issues Sell on NZD/USD Amid USD Strength, RBNZ Outlook

BofA Recommends Selling NZD/USD

Bank of America has issued a sell recommendation for the NZD/USD currency pair. The bank anticipates near-term strength in the U.S. dollar combined with a dovish outlook for the Reserve Bank of New Zealand, creating downward pressure on the kiwi.

Market Overview

The U.S. dollar is showing resilience due to stable economic data and a focus on first-quarter fiscal stimulus. BofA notes that near-term rates could re-price upwards ahead of the Federal Reserve leadership changeover in June, supporting the USD. In New Zealand, despite signs of economic stabilization, analysts highlight that spare capacity continues to weigh on the country's inflation.

Economic and Policy Impact

BofA economists forecast that New Zealand's inflation will fall below projections from both the Reserve Bank of New Zealand RBNZ and the market in 2026. This outlook sets the stage for a potential RBNZ interest rate cut in May. This contrasts with the central bank's more hawkish communication in November, suggesting a significant policy shift is anticipated.

Summary and Outlook

While Bank of America maintains a broader bearish view on the USD for 2024, it sees a tactical opportunity for dollar strength against the NZD. The divergence between a resilient USD and an expected RBNZ rate cut supports a lower NZD/USD exchange rate in the near term.

FAQ

Q: Why did Bank of America issue a sell recommendation for NZD/USD?
A: The recommendation is based on anticipated near-term U.S. dollar resilience and a forecast that the Reserve Bank of New Zealand will cut interest rates in May.

Q: What is the inflation outlook for New Zealand?
A: BofA economists project that inflation will undershoot official and market forecasts, prompting a more dovish monetary policy from the RBNZ.

Source: Investing.com