FXStreet (Edinburgh) – Yang Chen, Analyst at BAML, expects the Antipodean pair to grind lower to the 0.63 area by end of 2015.
Key Quotes
“NZD has been remarkably resilient since China adjusted the CNY fixing mechanism on August 11. Even after the recent catch-up, the NZD/USD only went down by 1.71%, ranking on top of the high beta currencies. This is surprising given its exposure to China”.
“In our view this could have been at least partly explained by short positioning as indicated by the CFTC data and up-down vol, rebound of GlobalDairyTrade price index most recently as well as the lack of communication from the RBNZ”.
“We consider these factors as temporary and downgrade our end-of-2015 NZD/USD forecast to 0.63 (from 0.67) and end-of-2016 forecast to 0.60 (from 0.65). In our view, NZD/USD should weaken further for a few reasons”.
“First, we wouldn’t read too much into the strong dairy auction result, as it is not clear to what extent the result was driven by reduction of auction volume thus how sustainable the strong result would be”.
“Second, the market could have underestimated the scope of RMB to weaken over the medium term, even though the Chinese policy makers would probably prefer to cap USD/CNY upside for now. A weaker RMB should have negative impact on New Zealand’s export, particularly as China accounts for about 22% of its total exports”.
“Third, China growth stabilization, if anything, will likely be more positive for AUD than NZD, as the government is aimed at boosting infrastructure investment at least for the rest of the year”.
“Fourth, the RBNZ is still in the easing cycle and the RBNZ noted that “further depreciation is necessary given the weakness in export commodity prices”.
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