18 Nov 2015
NZDUSD to kiss 0.62 by year-end - Westpac
FXStreet (Delhi) – Imre Speizer, Research Analyst at Westpac, expects NZD/USD to fall to at least 0.62 by year end and the main drivers are likely to be a tighter Fed, an easier RBNZ, and weak commodity prices.
Key Quotes
“The Fed’s looming tightening cycle will probably be the main contributor to a softer NZD/USD via a stronger US dollar. However, also contributing to the bearish case will be the RBNZ’s easing bias, which is expected to persist for some time, and NZ commodity prices, which are expected to remain weak over the medium term.”
“The behaviour of the US dollar is clearly a major influence on NZD/ USD. And a significant determinant of US dollar behaviour is the level of US interest rates relative to those in other countries. We expect the Fed to start increasing its policy rate from December, which should support the US dollar for some time. Thus, we see the US as an important source of negativity for NZD/USD during the next few months.”
“We expect the RBNZ to cut the OCR further in December, and to maintain an easing bias thereafter. Our forecast is for a terminal rate of 2.0%. The market has priced a 56% chance of a December cut, and a 20% chance of a terminal rate of 2.0%.”
“The RBNZ needs to engineer higher CPI inflation during the year ahead, having undershot the policy target midpoint of 2.0% since 2012 (more recently, CPI inflation has averaged just 0.5% yoy over the last four quarters). With non-tradeables inflation remaining stubbornly low, the RBNZ will be looking to boost non-tradeables via a weaker trade-weighted exchange rate.”
Key Quotes
“The Fed’s looming tightening cycle will probably be the main contributor to a softer NZD/USD via a stronger US dollar. However, also contributing to the bearish case will be the RBNZ’s easing bias, which is expected to persist for some time, and NZ commodity prices, which are expected to remain weak over the medium term.”
“The behaviour of the US dollar is clearly a major influence on NZD/ USD. And a significant determinant of US dollar behaviour is the level of US interest rates relative to those in other countries. We expect the Fed to start increasing its policy rate from December, which should support the US dollar for some time. Thus, we see the US as an important source of negativity for NZD/USD during the next few months.”
“We expect the RBNZ to cut the OCR further in December, and to maintain an easing bias thereafter. Our forecast is for a terminal rate of 2.0%. The market has priced a 56% chance of a December cut, and a 20% chance of a terminal rate of 2.0%.”
“The RBNZ needs to engineer higher CPI inflation during the year ahead, having undershot the policy target midpoint of 2.0% since 2012 (more recently, CPI inflation has averaged just 0.5% yoy over the last four quarters). With non-tradeables inflation remaining stubbornly low, the RBNZ will be looking to boost non-tradeables via a weaker trade-weighted exchange rate.”