NZD starts the year still looking quite cheap - BNZ

Analysts at BNZ see the NZD/USD pair at 0.65 by the end of March, and at 0.66 by the end of September and at 0.67 by year-end. They see the New Zealand dollar still trading on the cheap side of fair value.

Key Quotes: 

“The new year has begun with the NZD and AUD being the two weakest major currencies, but this follows their notable strength through December. The NZD closed last year at 0.6740 (up 5.0% in December) and reached an intra-day peak of 0.6756 in the early hours of New Year’s Day when US markets were still open. Since then, we’ve seen a steady fall, down to a low of 0.6600 on Friday and closing the week at 0.6635. 

“Our pre-existing forecasts have the NZD anchored between 0.65-0.67 through 2020 and, if  anything, we’d judge some mild upside risk to these estimates. Our latest short-term fair value model estimate sits at 0.71, supported by well above-average risk appetite (of 82%). A more neutral risk appetite figure of 50%, would drag down fair value to 0.68, which is still above the current spot rate. So the NZD is still trading on the cheap side of fair value, as it has done over the past 8 months or so, and more so over the past 4 months. A turnaround in the USD, which is expensive against all key major currencies, remains the key to the NZD making further gains.”

“In the week ahead we’ll be watching the NZ QSBO (tomorrow), where we expect to see a decent uplift in business confidence, as previously indicated by the monthly ANZ survey. Globally, we’ll be watching a number of US economic releases, including the CPI and retail sales, while China’s latest monthly data dump is slated for Friday. The US-China phase-1 trade deal is set to be signed midweek (15th), where we’ll see exactly what has been agreed. US-Iran tensions will need to be closely monitored, while House Speaker Nancy Pelosi has said she will send the articles of impeachment against President Trump to the Senate this week. US politics will be a predominant theme for 2020, as will NZ politics later in the year, ahead of the next general election.”

“The currency is well of the 1 January high of 0.6756, which we’ll mark as a level of resistance. The 0.65-0.6550 zone should represent the first zone of support.”