The RBNZ has been slowly reducing market expectations that they will move to negative interest rates next year. Not that long ago, back in October, the RBNZ was encouraging markets to expect the RBNZ to use negative interest rates. However, that has all changed now. You can catch up by reading where the RBNZ are now at and how they got here by reading my latest central bank piece for December and looking at the RBNZ. This shift from the RBNZ has resulted in NZ 10-Year Bond yields spiking higher. Furthermore, since November, the prospect of both a Biden Presidency and a global vaccine means that pro-cyclical currencies like the AUD and NZD should gain.
The USD is also now entering a historically weak time of the year where the USD tends to weaken. Check out the historical data on the chart. It is also unsurprising that the seasonals for the NZDUSD pair tend towards strength more times than weakness.
So, this should mean that the NZDUSD is supported into 2021 and this could be a good time to benefit from global growth expectations. Expect buyers on the dips over the next couple of weeks. This outlook would change if we saw any strong shift in risk sentiment. Although unlikely at this stage there could be some negative sentiment on any news that COVID-19 lockdowns are increasing. However, vaccine hopes are only growing each day and this should keep the mood positive into year-end. Another area to watch is that tensions between China and Australia don’t drift over into tensions with New Zealand.