9 Mar 2016
NZD: Times they are a changing - ANZ
Sam Tuck, Senior FX Strategist at ANZ, suggests that the New Zealand and the NZD are caught in limbo between a solid domestic story and external risks.
Key Quotes
“Simple analysis of the NZD shows it remains a strong currency, reflecting domestic factors, and a US-centric view of the currency misses key factors.
We are returning to world where ‘bad news’ is just bad news and NZD is highly attuned to ‘bad news’.
Domestically, New Zealand remains solid, but externalities are significant.
Ideally, NZD should decline against AUD, EUR, JPY, and GBP, but we don’t live in an ideal world.
NZD/USD is 15.8% below its 5 year average, 11% below its 10 year average, 3% below its 15 year average, and only 1% above its 20 year average. It is hard to argue that the NZD/USD requires significant further depreciation purely on this basis, and the move toward normalisation in the US appears to have quickly corrected distortions in NZD/USD.
Our central premise remains that NZD needs to decline further, particularly against non-USD currencies, and will decline rapidly if external risks translate into the domestic economy. With markets nervous over central bank policy, our major trade partners under pressure, and credit spreads widening, we end with the following thought: domestically New Zealand looks attractive, but there are significant global risks that could alter that picture, and the doorway to NZD remains a small one.”
Key Quotes
“Simple analysis of the NZD shows it remains a strong currency, reflecting domestic factors, and a US-centric view of the currency misses key factors.
We are returning to world where ‘bad news’ is just bad news and NZD is highly attuned to ‘bad news’.
Domestically, New Zealand remains solid, but externalities are significant.
Ideally, NZD should decline against AUD, EUR, JPY, and GBP, but we don’t live in an ideal world.
NZD/USD is 15.8% below its 5 year average, 11% below its 10 year average, 3% below its 15 year average, and only 1% above its 20 year average. It is hard to argue that the NZD/USD requires significant further depreciation purely on this basis, and the move toward normalisation in the US appears to have quickly corrected distortions in NZD/USD.
Our central premise remains that NZD needs to decline further, particularly against non-USD currencies, and will decline rapidly if external risks translate into the domestic economy. With markets nervous over central bank policy, our major trade partners under pressure, and credit spreads widening, we end with the following thought: domestically New Zealand looks attractive, but there are significant global risks that could alter that picture, and the doorway to NZD remains a small one.”