- NZD / JPY reports losses as the New Zealand government anticipates significant economic deterioration.
- The unemployment rate is expected to reach 9.8% in September, according to the 2020 budget.
- The risk tone in global markets adds to downward pressures around the NZD.
The NZD / JPY is expected to extend its losses as the New Zealand government statement on the 2020 budget released a few minutes before press time showed that the authorities expected a sharp drop in economic activity and a substantial increase in unemployment.
“New Zealand’s real GDP growth rate is expected to decline from 2.8% in the year ending June 2019 to -4.6% in the year ending June 2020, in because of a quarterly drop in GDP or more than 20% in the quarter of June 2020 “. budget statement says.
Meanwhile, officials expect the unemployment rate to reach 8.3% in the year ending June 2020 and peak at 9.8% in September 2020.
The dismal forecasts are not surprising, given that economic activity stopped in Mach and in April due to the coronavirus epidemic. That said, the significant deterioration in the growth rate and the labor market could put pressure on the Reserve Bank of New Zealand to apply negative rates. The central bank lowered interest rates to 0.25% in March and launched an extensive asset purchase program.
Westpac expects the central bank to cut rates below zero in November. The central bank also said that negative rates could become an option in the future.
NZD bulls should therefore remain on the sidelines, especially as general market sentiment has worsened in the past 24 hours due to the warning of Federal Reserve Chairman Jerome Powell of a slowdown long and painful economic. In addition, prominent investors like Stanley Druckenmiller have raised questions about the current market valuation, adding to downward pressures on the US and global stock markets.
The NZD, being a growth linked currency, tends to perform negatively during episodes of risk aversion in global markets.
The NZD / JPY pair is currently trading at 63.88, which represents a drop of 0.28% on the day. The pair fell from 64.25 to 63.85 during the 60 minutes at 02:00 GMT and extended their losses to reach a session low of 63.79 after the release of the New Zealand budget.