NZD/USD: sticky at 0.7150, but headed to 0.7000? - Westpac

Analysts at Westpac offered their NZD/USD outlook targeting 0.7000.

"1 week:

NZD/USD is stuck in neutral around 0.7150. We need to see a break outside 0.7035-0.7265 to signal medium term direction, which the action packed NZ and US calendars (and polls) this week may spark. NZ events argue for higher, while US events argue the opposite. NZ’s calendar contains the Q3 jobs report (Wed), RBNZ inflation expectations survey (also Wed), and the GDT dairy auction. We expect a further improvement in the unemployment rate, from 5.1% to 4.9%.

Inflation expectations, though, are likely to extend sideways. Dairy prices are predicted by WMP futures to rise 10% on Tue, weatherrelated supply reductions at play. A heavy US calendar includes an FOMC meeting and jobs data. Residual seasonality in the jobs data points to a clear bias in favour of stronger prints in Q4 (11 of the last 15 Oct-Dec releases over the last 5 years have beaten consensus). The Fed statement is likely to cement Dec hike expectations too, noting that the “case for an increase in the Federal funds rate has strengthened,” as per the last statement, but go further and signal the possibility of lifting rates in Dec.

3 months:

We target 0.70, based on an assumption the Fed will hike in Dec and the RBNZ will cut in November. However the persistent backdrop of global demand for high-yielding currencies is strong - if the Fed doesn’t hike, then 0.75+ is likely instead. A middle scenario is the Fed hike in Dec is a “dovish” one, signalling little further tightening ahead, which would result in limited NZD/USD downside."