FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the NZD continues to play a central role in framing the policy outlook, and their rates forecasts are predicated on a further depreciation over the coming year.
Key Quotes
“Specifically, our NZD/USD forecasts are unchanged at 0.68, 0.64 and 0.62 on a 3, 6 and 12 month view. Such a depreciation would bring the currency more in line with our estimation of fair value, and better reflect the NZ$-negative forces of lower dairy prices and stronger relative US growth/rates. Indeed, if the FOMC tightens by as much as we are currently forecasting (+125bp by end-2016), there is a strong case for the NZD to be weaker still.”
“Nevertheless, we remain wary that the NZD could catch a bid as the (expected) next wave of policy easing by the ECB and BoJ take hold. In fact, there is some evidence that this is occurring already. Longer term these forces should fade however, and along with a widening in NZ’s external imbalances, see the NZD settle around the GSDEER estimate of structural fair value (0.64).”
“From the perspective of the AUD/NZD cross, we view longer-run fair value as around 1.10. All thing equal, it is not immediately clear how the AUD/NZD will trade in the event of an equally severe drought across the Tasman– given that agriculture’s share of the economy is fairly similar across both NZ and Australia (~5-6; and also our estimated drag to growth: ~-50bp). Relative conditions will require close monitoring.”
“A scenario where China executes a material devaluation of its currency is another matter however. In that scenario, a depreciation in the AUD/NZD towards parity cannot be ruled out – in part given Australia’s relatively higher trade exposure to China (28% of total exports, compared to ~16% in NZ), but also the composition of those imports. On this latter point, in the event of a further slowing in China and related devaluation, we are of the view that China’s demand for food (to which NZ is relatively more exposed) would prove more resilient than its demand for steel and bulk commodities (to which Australia is most highly leveraged).”
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