NZD to underperform the USD and AUD in 2017 – Westpac

Sandeep Kanihama FXStreet Contributor

Imre Speizer, Research Analyst at Westpac, suggests that in a year laden with risky events, they expect the NZD to underperform the USD and AUD, but outperform the JPY, EUR and GBP.

Key Quotes

“NZD/USD was volatile in 2016, eking a 10c range, although it ended the year only 2% higher than where it started. Momentum is currently negative and it has potential to probe lower into the 0.6700-0.6800 area during the next few months. Technically, the wedge-shaped decline since September is incomplete.”

“The main determinant of NZD/USD in 2017, as it is much of the time, will be the US dollar. A stronger US dollar (and therefore weaker NZD/USD) is very much a consensus view (tighter US monetary policy/looser fiscal policy mix should boost the USD), and that makes us slightly nervous. For example, the US fiscal impulse could disappoint, tighter financial conditions could slow growth, and a mercantilist trade agenda could include a weaker US dollar. However, our base case is that the Fed will need to hike twice in 2017 and twice in 2018 - consistent with market pricing - and the US dollar will strengthen.”

“Absent a strong US dollar, we would certainly be more bullish on the NZD/USD’s prospects. Taking into account commodity prices, interest rates and risk sentiment, our fair value model estimates it should currently be trading closer to 0.75 than 0.70 actual. That said, mis-valuations have been larger in the past and persisted for long periods.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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