NZD/USD: Scope for a dip below the 0.70 level – Rabobank

NZD/USD has pushed back above the 0.70 level, having dipped its toe below this psychological level in the past couple of sessions. Although the medium-term outlook is positive for the kiwi, economists at Rabobank expect the pair to dip below 0.70 in the short-term.

The signal appears to be that a 25 bps rate hike is in the offing 

“In a speech this week Assistant RBNZ Governor Hawkesby pushed against speculation that the central bank was preparing to announce an aggressive 50 bps rate hike. That said, his remarks can be interpreted as validation that the central bank could be preparing to announce a 25 bps rate hike in October.”

“The fact that the New Zealand economy went into lockdown last month on a very strong footing combined with its rapid recovery from the 2020 restrictions will likely boost policy makers confidence about the economic prospects for 2022. That said the restrictions will clearly have a detrimental impact on growth in the current quarter, while the Delta variant means there is still a lot of uncertainty about the future.”

“We are constructive on the medium-term outlook for the NZD, but see scope for NZD/USD to dip below the 0.70 level on a one-to-three month view.”