NZD/USD: Limited upside potential – Rabobank

Analysts at Rabobank see the upside potential in the NZD/USD pair as limited. They forecast the pair at 0.74 on a twelve months perspective. 

Key Quotes: 

“While inflation expectations at 2.05% in Q2 are still moderate, policy-makers will be keeping eye of the trajectory of this variable.  Market pricing currently implies a small increase in RBNZ interest rates on a 1 year view with a lot more to come on a 2 year horizon.”

“The recent spate of relatively better news on the New Zealand economy has raised expectations that it avoided falling back into technical recession in the first quarter of 2021.   This ‘less bad’ performance suggests that the market will be looking for sparks of optimism from the central bank later this month.  That said, with border shutdowns looking set to last for some time and Covid cases having risen recently in various parts of Asia, the RBNZ is likely to be wary.”

“Geo-political factors may also be a consideration for some rate setters. The acknowledgement from PM Ardern that differences with China were becoming harder to reconcile and the declaration by parliament this month that human rights abuses were taking place against Uyghur people in China's Xinjiang region risk a push-back in trade.”
 
“On the assumption that the RBNZ will remain cautious we continue to see upside potential in NZD/USD as limited.  We continue to forecast a move to 0.74 on a 12 mth view.”