NZD: Riding the waves - Westpac
|Analysts at Westpac suggest that New Zealand’s economic fundamentals look very attractive against the lacklustre global backdrop which has seen the NZD retrace its late-2016 decline against the US dollar and they expect it will remain well supported for the next few months.
Key Quotes
“The kiwi is expected to lose some altitude over 2018 as growth here starts to ease off.”
“It’s been a bumpy few months for the New Zealand dollar, with the Kiwi continuing to be buffeted by global forces. The strongest of these have emanated from the US. In the wake of Donald Trump’s election to the presidency, his initial consolatory tone and plans to boost fiscal spending were greeted positively. We also saw the Fed hike the funds rate in December, and market expectations for future hikes being brought forward. These developments gave the US dollar a shot in the arm, and saw the NZD/USD fall by around 7% through late-2016.”
“However, since entering office, sentiment towards the new president has soured in some quarters. And combined with a lack of detail around policy, the US dollar has come under downwards pressure.”
“At the same time, the New Zealand economy has continued to look like a standout. GDP growth has been firm. Dairy prices have held on to most of their gains from the past year. And inflation has finally picked up. We still think it’ll be some time before the Official Cash Rate starts to rise. But with New Zealand’s economic fundamentals looking rosy against a still lacklustre global backdrop, the Kiwi has been well supported. In early 2017 the NZD/USD has picked up, retracing most of the decline we saw in late 2016. We expect that it will linger around 71 cents through the first half of 2017.”
“We expect the Fed to hike the funds rate twice this year, with a continued gradual tightening further ahead. At the same time, the RBNZ is expected to stand pat. These conditions should see the NZD/USD ease back through 2017, before heading down towards the mid-60s through 2018 as growth in New Zealand eases back.”
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