The Australian and New Zealand dollars ended the year with a strong uptrend. If you subscribe to the belief that a moving trend is likely to stay moving until agitated by a strong force, you will enter 2021 with a strong bullish bias because the strongest force that could make derail the rally in Australia and The kiwi is the US dollar itself and all forecasts point to it continuing to lose value due to increased deficit spending.
Last week AUD / USD was 0.7700, up 0.0100 or + 1.32% and NZD / USD ended at 0.7184, up 0.0061 or + 0.85%.
In 2021, the Australian and the Kiwi are more likely to be supported by a number of factors, but most rely on controlling the coronavirus. Australia and New Zealand have so far done well in controlling the spread of the killer virus using good contact tracing methods to mitigate further outbreaks. Optimism in a full economic recovery will increase if the vaccine rollout is successful.
Additional aid in the form of government stimulus measures also provides support. Meanwhile, the US economy is expected to weaken and lag behind other majors. In addition, political risks are expected to increase and the Fed should continue to print change. All of this will be detrimental to the US dollar.
China’s economic growth is also expected to improve, increasing demand for Australian products such as iron ore. This is one of the reasons why the Australian dollar is expected to outperform the New Zealand dollar in 2021.
RBA expects recovery to be patchy and slow
At its recent policy meeting in December, the Reserve Bank of Australia (RBA) said it did not plan to increase the cash rate for at least 3 years, but was ready to do more. if necessary. He also said he would keep the size of the bond buying program under review.
The RBA also said tackling high unemployment was a national priority and that fiscal and monetary support would be needed for some time.
Regarding its forecast, the RBA said positive news on the vaccine front should support the recovery of the global economy, and Australia’s economic recovery is underway and recent data has generally been better than expected. . However, the recovery is still expected to be patchy and long and will still depend on strong political support. The RBA also warned that a further rise in the unemployment rate was still expected.
RBNZ unveiled new lending tool at the end of 2020
At its last monetary policy meeting in mid-November, the Reserve Bank of New Zealand unveiled a new monetary policy tool that will lower borrowing costs for lenders, while keeping the benchmark rate low. record level and signaling its willingness to deploy negative rates.
Heading into 2021, New Zealand dollar traders will be on the lookout for any clues that the RBNZ may move to zero rates or negative OCR, although stronger-than-expected data has given the RBNZ RBNZ has the option of sticking to its forecast for next March closely.
New Zealand’s success in containing the community spread of COVID-19 has allowed the economy to rebound faster than most other countries, but with more job losses expected in the coming quarters, rising inflation weak and an economy in recession, the RBNZ should continue its momentum. monetary support.
The outlook for the Australian dollar in 2021 is more positive than negative against the New Zealand dollar. The major concern of both economies in 2021 will be the labor market.
For New Zealand, the outlook remains a bit more uncertain. According to ANZ, “Closed borders mean a smaller economy and the effects of the recession are inevitable.” Negative rates from March are still possible if the economy starts to take an unexpected turn.