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NZD/USD was squeezed higher on Wednesday following the regular policy meeting of the Reserve Bank of New Zealand (RBNZ). Jane Foley, Senior FX Strategist at Rabobank, expects the kiwi’s rally to run out of steam, however, forecasts the pair at 0.72 on a six-month view.

Supply chain disruptions could potentially constrain domestic activity in the near-term

“Despite caution on the outlook for growth, the RBNZ is expecting that supply chain disruption and oil prices effects will cause headline inflation to temporarily exceed 2% for a period. In tune with the message of various other G10 central banks, the RBNZ can be expected to look through this until the labour market shows sustained improvement.”  

“Currently the labour market is uneven with border closures also creating some supply shortages, although overall employment is seen to be below its maximum sustainable level.”

“We expect the RBNZ to retain a cautious stance on policy for an extended period.”

“We see limited scope for follow through on Wednesday’s NZD/USD rally in the near-term. That said, we see NZD/USD at 0.72 on a 6-month view assuming further signs of economic recovery on that horizon.”  

 

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