After soaring earlier in the year, the New Zealand dollar has crashed back down to earth in recent weeks. Economists at Westpac expect the kiwi to regain some ground against the US dollar and other major currencies over the coming months.
Potential for gains relative to the Australian dollar looks limited
“The New Zealand dollar is expected to reclaim some ground against the US dollar and other currencies through the back half of the year.”
“Relative to fundamentals, such as the strength of our commodity prices, the fall in the New Zealand dollar already looks overdone. And with demand for our commodity exports set to remain firm, we expect the New Zealand dollar will be well supported over the coming months.”
“We also expect the strength in the US dollar to fade towards the end of the year as some of the recent sharp increase in expectations for tightening by the Fed is scaled back.”
“The NZD is set to hold around 91 cents against its Australian counterpart through to the end of the year. Australia is now running trade surpluses (in contrast to New Zealand’s continued deficits). However, balanced against that firmer trade position, financial markets appear to be significantly overpricing the extent of likely interest rate hikes from the RBA (and by a greater extent than in New Zealand). The eventual unwinding of those positions will leave the AUD weighed down relative to its New Zealand counterpart.”
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