FX markets seem fatigued with the New Zealand “good news” story and are instead looking to downside risks as we head into 2022. These risks could challenge ANZ Bank’s forecasts calling for NZD/USD to level off at 0.72 in 2022.

Significant risks for the kiwi loom ahead

“As the positive impact of surprises fades, the NZD could well run into headwinds, and we acknowledge that our forecast calling for NZD/USD to appreciate towards 0.72 over 2022 could be challenged. The kiwi typically benefits from positive seasonality in December, but there’s no sign of that yet.”

“We are mindful of emerging downside risks – both local and global – as we head into 2022. The Omicron variant of COVID-19 is one such risk, but we are also mindful of the myriad headwinds facing the local housing market, the high degree of household leverage, elevated global asset prices, China’s real estate sector challenges, and generalised late-cycle risks at a time when central banks are starting to change their tune.”

“We actually think a lot needs to go right (and nothing to go wrong) for the RBNZ to be able to deliver another five hikes and get the OCR to 2.00%.”