- Interest Rate Outlook: Markets price the Official Cash Rate (OCR) above 3%, but risks suggest lower rates may be needed due to spare economic capacity.
- Economic Growth: Q4 GDP growth of 0.7% exceeded expectations but included one-off factors unlikely to persist.
- Inflation Risks: With high spare capacity (~ -1.5% output gap), disinflation remains a concern, increasing the risk of rates undershooting market expectations.
Fundamental Factors Affecting NZD
- Growth Outlook: While NZ is technically out of recession, the underlying recovery remains weak, with low consumption growth (0.1%) and a declining residential investment sector.
- Labour Market & Inflation: Unemployment has yet to peak, and inflation is close to target, meaning the RBNZ may need to keep rates neutral for longer or even cut below 3%.
- Housing Market: 44% of mortgages are fixed for six months or less, meaning homeowners may benefit from lower fixed rates. However, it is unclear whether rising unemployment will boost spending.
- External Factors: Higher commodity prices support exports, but global trade tariffs could slow growth.
- Political & Policy Uncertainty:
- RBNZ forecasts above-trend growth (2.6%)—which may be optimistic given trade risks.
- Political uncertainty, including the departure of RBNZ Governor Adrian Orr, adds to volatility.
Key Takeaway for Traders
- NZD downside risks remain as economic slack persists, and rate cuts below 3% are possible.
- Watch for inflation undershooting in the coming months. If confirmed, the RBNZ may need a longer period of neutral or lower rates, pressuring the NZD.
- Housing stabilization and strong exports could provide limited upside, but overall growth is unlikely to remove spare capacity quickly.
EURNZD – H4 Timeframe
Following the bearish break of structure on the 4-hour timeframe chart of EURNZD, the Fibonacci retracement tool was plotted, with levels 61% to 88% being the significant areas of focus. The subsequent retracement is approaching the supply zone that overlaps the 61.8% retracement level after having swept liquidity from the previous internal structure, leading to a bearish sentiment.
EURNZD – H2 Timeframe
The price action on EURNZD’s 2-hour timeframe chart validates the 4-hour timeframe sentiment by revealing the FVG (Fair Value Gap) that the price is expected to fill before being rejected from the supply zone.
Analyst’s Expectations:
- Direction: Bearish
- Target- 1.84964
- Invalidation- 1.91228
