New Zealand Dollar: TD Warn of December Rate Cut

The NZ Dollar has fallen notably after the Reserve Bank of New Zealand opted for a September rate cut of 25 basis points taking the OCR to 2.75 pct.

The New Zealand dollar tanked in response allowing the GBP to NZD exchange rate to rise to 2.4560.

The prospect of 2.50 becoming a reality is now full on the cards.

Against the US dollar the New Zealand dollar is down to 0.6299, its lowest point since mid-2009.

More declines are possible warn TD Securities who believe New Zealand’s central bank is not yet done:

“Our base case remains for another cut to 2.5%, in December, and NZD to $US0.62. The markets were underpricing this scenario yesterday (2.5% by March 2016) but right now OIS is fully priced for December.”

New Zealand’s economy is currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration.

However, the growth outlook is now softer than at the time of the June Statement.

Latest Pound / New Zealand Dollar Exchange Rates

	Live: 2.3113▼ -0.06% 12 Month Best: 2.3553
*Your Bank's Retail Rate	2.2327 - 2.242
**Independent Specialist	2.279 - 2.2882 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Rebuild activity in Canterbury appears to have peaked, and the world price for New Zealand’s dairy exports has fallen sharply.

In addition, the RBNZ has been allowed to cut further thanks to headline inflation which is currently below the Bank’s 1 to 3 percent target range, this largely due to previous strength in the New Zealand dollar and a large decline in world oil prices.

Take note that the RBNZ continues to invite a lower NZD; in their statement the Bank said:

“While the lower exchange rate supports the export and import-competing sectors, further depreciation is appropriate, given the sharpness of the decline in New Zealand’s export commodity prices.”

Justifying their call for a December interest rate cut TD Securities noted the following passage:

“A reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2 percent target midpoint. At this stage, some further easing in the OCR seems likely. This will depend on the emerging flow of economic data.”

TD say December to stretch out the easing bias into year end.

Fair Value? 

While the trend certainly favours a continuation of the move lower in NZD analysts at ANZ say the currency appears fairly priced at the present time.

ANZ See NZ dollar at fair value.

"The NZD TWI is about where it should be (in between the Q3 and Q4 projections), so markets are there or thereabouts, suggesting that unless we get any major surprises, we’re not going to get a lot of locally inspired volatility," say ANZ.

Note this assumption is based on domestic events; the main risks to the currency are therefore external in nature.

China lingers but it is the mid-month decision on interest rates by the US Fed that presents the largest risk to global financial markets at present. 

A rate hike in the US will surely press the New Zealand dollar lower as an improving yield advantage in the United States attracts global money.