According to Goldman Sachs' latest report, the New Zealand Reserve Bank may adopt more aggressive easing measures than the market expects at next week's monetary policy meeting, with a potential rate cut of 75 basis points, higher than the general market forecast of 50 basis points. This prediction reflects Goldman's concerns about the weak fundamentals of the New Zealand economy.
Goldman Sachs analysts believe the fundamentals of the New Zealand economy are weak, particularly as employment data has not improved, providing justification for the Reserve Bank to implement a larger rate cut. With slowing economic growth and decreasing inflationary pressures, further easing of monetary policy becomes a reasonable choice.
In the foreign exchange market, the New Zealand dollar has recently hovered near its 12-month low against the US dollar, indicating that bearish sentiment on New Zealand's economic outlook has been fully priced in. However, Goldman Sachs notes that the downside for the New Zealand dollar may be limited. Current short-term technical support is focused in the 0.5890-0.5900 range, and breaking through this area may offer some rebound opportunities for the currency.
Nonetheless, the market must remain vigilant for further downside risks. If the Reserve Bank of New Zealand implements the anticipated 75 basis points rate cut, the New Zealand dollar could fall below its November 2023 low, triggering new selling pressure. Despite the currency being oversold, changes in market sentiment and interest rate expectations could continue to weigh it down.
Goldman's report also highlights the impact of the global monetary policy environment on the New Zealand dollar's performance. As other central banks gradually end their tightening cycles, a larger rate cut by the Reserve Bank of New Zealand will exacerbate the weakness of the currency.
Market participants are closely watching the Reserve Bank of New Zealand's final decision at next week's meeting, which will become a crucial indicator for future monetary policy paths and the New Zealand dollar's trajectory.
