FXStreet (Barcelona) – Currency Strategists at BNZ, pare their NZD profile in deference to both global uncertainty, as well as risks to domestic demand, forecasting NZD/USD to head lower towards 0.65 by end-15 and 0.64 by end-16.
Key Quotes
“A fortnight ago, downward momentum in NZD/USD looked to be waning, and we were eyeing the possibility of a short squeeze up through 0.70. We were looking for some support from dairy price stabilisation and possible improvement in business confidence, on the back of a lower currency and interest rates.”
“Instead, the winds have blown sharply in the other direction. Not only have dairy prices and business confidence declined, but the global outlook has also become much more uncertain. NZD suffers badly during sagas that prompt risk aversion, such as Greece’s possible exit from the euro-zone, and China’s equity market rout. If sustained, the latter has potential to significantly affect NZ’s trade flows, not just through dairy, but also through tourism.”
“As a result, we moderate our NZD forecasts in deference to heightened downside risks, both financial and economic. We now forecast 0.65 by end-15 and 0.64 by end-16. The market prices in the prospect of 63bps worth of RBNZ rate cuts by mid-2016. Even allowing for this, NZD/USD is trading well below ‘fair value’. However, we think it prudent to allow some room for NZD to overshoot ‘fair value’, especially as the Fed starts hiking later this year.”
(Market News Provided by FXstreet)