Jason Wong, Currency Strategist at BNZ, notes that the NZD is well off its early-September peak and there is a chance that level (USD0.74+) won’t be revisited this year.
“With increasing conviction of a December Fed hike and further tightening next year, the path of least resistance is a weaker NZD on a 6-12 month view. We see a period of consolidation through the rest of the year, with a circa USD0.70- 0.73 trading range, and a downside bias to the range as we track through 2017.
The USD is on a firmer footing, reflecting the reduced chance of a Trump Presidential victory and a run of reasonable data that pave the way for the US Fed to hike rates in December. Our core view remains that the market is complacent about the outlook for US monetary policy, with only circa 40bps of hikes priced in through to the end of next year, compared to our expectation of 75bps of hikes. This sets the scene for a stronger USD profile through the next year, which is negative for risk appetite and the NZD.
While global forces are expected to conspire against the NZD, domestic forces remain NZD-positive, and that limits the extent of any expected downturn in the currency. The NZ economy is growing above trend, NZ’s terms of trade are rising, NZ’s external accounts remain in a better-than-average state and the strong fiscal position provides scope for stimulus ahead of, and beyond, the late-2017 general election.”