C.B.A Upgrade 2016 New Zealand Dollar Forecasts, All Eyes on Dairy Trade Figures Next Week

Commonwealth Bank Australia (C.B.A) have upgraded their forecasts for the New Zealand dollar in 2016 while confirming they predict one Reserve Bank of New Zealand interest rate cut in 2016.

In a 2016 exchange rate forecast note to clients C.B.A say they are also upgrading their kiwi dollar forecasts against the US dollar.

No doubt, it will be the upgrades to this rate that will have impacted on the changes made to the GBPNZD cross.   

“We have increased our NZD/USD forecasts. The main reasons for a higher NZD/USD are higher New Zealand swap rates and stronger-than-expected demand for New Zealand assets, which is generating support for the NZD,” say C.B.A.

The New Zealand dollar has started 2016 in poor fashion owing to a break down on global investor sentiment, and this theme could still play out in the over coming weeks it is suggested.

The pound to New Zealand dollar exchange rate has taken advantage of negative global financial sentiment to push higher to back above 2.20.

The New Zealand to US dollar rate has meanwhile collapsed from above 0.68 in December to below 0.65 at the present.

“We still project NZD/USD will decline from current levels in the near-term, though from a higher level than earlier forecast,” say Commonwealth.

With regards to New Zealand monetary policy - arguably the most important driver of the NZ dollar - CBA still expect the Reserve Bank of New Zealand to cut the official cash by another 50 basis points in 2016.

“Lower New Zealand interest rates will be bear down on NZD. Low dairy prices will also bear down on New Zealand’s terms of trade and NZD/USD,” say C.B.A.

Latest Pound / New Zealand Dollar Exchange Rates

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* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The NZ to US dollar exchange rate is forecast to reach 0.62 in March (up from a previously expected 0.58), 0.63 in June (previously 0.59), 0.64 in September (previous 0.60) and finally 0.65 at year-end (up from 0.61).

As a result of the changes to the NZD/USD forecasts, “we are cutting our forecasts for AUD/NZD. We still predict AUD/NZD will track modestly higher in 2016 though from a lower starting level. AUD/NZD is likely to remain heavy consistent with the Australia-New Zealand terms of trade differential,” say Commonwealth.

The pound to New Zealand dollar exchange rate is forecast to reach 2.3063 by the end of March, this revised lower from a previously held forecast of 2.6035.

Mid-year sees 2.2852, down from 2.6103, September sees 2.2967, down from 2.6164. Year-end forecasts are changed from 2.6226 to 2.3229.

New Zealand Dollar Week Ahead: Diary Trade to Dominate Focus

The week ahead is the first serious one for NZ data this new year.

Tuesday morning’s (10:00am) Quarterly Survey of Business Opinion, in particular, will provide its usual scene-setting of how NZ firms are feeling about things.

“We expect it will look distinctly better than it was at previous release, three months ago, in line with the improved tone seen in the month to month economic surveys,” say analysts at BNZ in Aukland.

The question is, just how positive will the QSBO get? “It could have a bearing on our near-term view on the economy,” suggest BNZ.

Yet the markets will probably put more weight on Wednesday’s (10:45am) Q4 CPI. We are looking for a 0.2% quarterly fall in this – partly seasonal – in line with market and RBNZ expectations.

“We judge downside risk, however, given the weak December FPI. This is reflected in the annual inflation of 0.3% that we are picking for Q4, compared to (current) market polls, and RBNZ expectations, of 0.4% y/y,” say BNZ.

The real issue for the headline CPI is that it’s likely to far undershoot what the December MPS forecast for Q1 2016, given technicalities around oil (and food). Yet core inflation measures stand a good chance of holding up (something also not to overlook in Wednesday’s Q4 CPI result).

There is a Global Dairy Trade auction scheduled for the early hours of New Zealand’s Wednesday morning.

The dairy sector is incredibly important to New Zealand’s terms of trade and therefore we will be looking for an improvement here.

BNZ warn though that disappointment could be the order of the day as dairy prices  look prone for another fall in price, given the worsened global commodity context since last auction, back on 6 January, and for the fact that whole-milk powder price futures on the NZX have dribbled off a fraction further.