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New Zealand Dollar Tipped as Buy at Westpac and CBA

- NZD underperforms with commodity FX
- Still a "buy on dips" at Westpac & CBA
- 2015 highs of 0.76 eyed for NZD/USD

New Zealand Dollar a Buy

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  • GBP/NZD spot rate at time of writing: 1.9296
  • Bank transfer rate (indicative guide): 1.8621-1.8756
  • FX specialist providers (indicative guide): 1.9122-1.9160
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  • Set an exchange rate alert, here

The New Zealand Dollar was lower across the board on Thursday in sympathy with other commodity currencies while European counterparts prospered, lifting GBP/NZD in the process, although the Kiwi currency continues to be tipped as a buy at Westpac and Commonwealth Bank of Australia.

New Zealand’s Dollar was the worst performing major currency on Thursday having ceded ground to other commodity currencies including the Australian Dollar despite a strong and faster-than-expected increase in the ANZ Business Confidence Index for May.

ANZ’s measure of sentiment among commercial firms rose from -4.1 last month to +7 this week reflecting rising optimism about the domestic and global economic outlooks.

“Solid New Zealand activity data points to a higher NZD/USD,” says Elias Haddad, a strategist at Commonwealth Bank of Australia (CBA),” who’s a buyer of the Kiwi and has told clients to expect an NZD/USD rally to a six-year high of 0.76 over the course of 2021.

Kiwi export, investment and employment intentions improved in the new month while reflationary cost pressures continued to build in what would be a positive omen for New Zealand’s inflation and interest rate prospects further down the line if ANZ’s measure of commercial firms’ expectations for inflation is anything to go by.

NZD to USD daily

Above: NZD/USD shown at daily intervals alongside GBP/NZD.

Expectations for the main consumer price inflation rate rose 0.2% this month and now imply consumer price growth of 2.2% for the year ahead, which is above the 2% midpoint of the 1% to 3% inflation target coveted by the Reserve Bank of New Zealand (RBNZ).

Signs of progress toward the target are positive for the Kiwiw Dollar outlook because sustainably meeting that threshold is, along with a return to maximum levels of employment, one of RBNZ policymakers’ two main preconditions for any eventual decision to lift the cash rate from its current 0.25% record low.

“Tomorrow’s quarterly RBNZ inflation expectations survey - one which the RBNZ itself pays close attention to - will be watched for any extension of the rise from June’s 1.2% low,” says Imre Speizer, head of NZ strategy at Westpac, referring to the RBNZ’s own inflation expectations survey that is released at 04:00 London time this Friday.

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Speizer and the Westpac team also remain buyers of the New Zealand Dollar and have advocated that clients continue to add to wagers favouring a higher NZD/USD in response to any dips back toward 0.71, also in anticipation of a return to early 2015 highs of 0.76. ANZ

New Zealand’s Dollar fell back back near to the round number of 0.71 on Tuesday but was met by a firm bid around the 21-week moving average of 0.7159 before being lifted further on Wednesday by a stronger-than-expected first-quarter employment report.

“NZD/USD has been boosted by the strong jobs data as well as upbeat risk sentiment and rising commodity prices. A test of 0.7285 is expected in the week ahead,” Speizer adds.

NZD to USD Weekly

Above: NZD/USD shown at weekly intervals alongside GBP/NZD.

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Kiwi employment grew by 0.6% last quarter when market expectations were for an increase of only 0.3%, which helped push the jobless rate down from 4.9% to 4.7% even as economists looked for it to remain unchanged.

Aided by a world leading containment and subsequent near-eradication of the coronavirus at the domestic level, the New Zealand economy has been damaged less badly than others in the last year and has also shown signs that it’s already rebounding quickly out of 2020’s economic crater.

This explains why prices in derivative markets for interest rate hedging products imply that investors expect the RBNZ to lift its cash rate as soon as next summer and before even the Federal Reserve, which is a supportive backdrop for the commodity-linked New Zealand Dollar and a headwind for GBP/NZD.

“Interest rate markets have been itching to test the RBNZ’s “patience” view, and we have seen short term interest rates rise which should, alongside roaring commodity prices, lend support to the NZD,” says David Croy, a strategist at ANZ.

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