The outlook for the NZ dollar sees a central bank concerned about currency strength continuing to do what it can to keep a lid on further gains.
“We expect any up moves in NZD to be limited given an expected dovish bias of the RBNZ in the upcoming policy meeting." - Barclays.
The NZ dollar fell sharply against the USD after the release of February labour market data on the 6th of March.
The currency joined other ‘high-yielders’ in recording losses against the USD as the stronger jobs data increased expectations for higher US interest.
Expect more money to flow from New Zealand to the US as the bias for US rate hikes grows.
The NZD lost 1.5 cents against the US currency in a matter of hours following the jobs data.
At the time of writing we see the USDNZD exchange rate has recovered some ground and is trading at 0.7375.
The NZD has also dropped sharply vs the Aussie dollar with the NZDAUD down in the low .9500 area, down nearly 2 cents from its peak above 0.9700 last week.
The pound sterling to NZ dollar exchange rate (GBPNZD) is 0.30 pct lower at 2.0494.
Keep in mind that the above quotes are representative of the wholesale markets - your bank will affix a spread to the rates at their own discretion when conducting your international payments. However, independent providers are able to get closer to the market rate, thereby delivering up to 5% more currency in some instances.
Westpac Turn Negative on NZD
Summing up a shift in approach to the New Zealand currency at the present time is the team at Westpac Bank.
"Our views on NZD have undergone a significant shift this last week. The recent multi-week rally came to an abrupt end on Thursday last week and the near term outlook is now negative. We expect the 0.7315 break to be sustained this week, and pave the way towards 0.7200. Technically, we are targeting 0.7150. Were it not for our long model signal (NZD has the highest total yield in the G10 and one of the strongest growth signals too) we would be short here," says David Coloretti in Sydney advocating for a speculative sell on the kiwi.
Outlook: RBNZ is Key Risk
Any rebounds in the kiwi dollar will likely be capped moving forward as this week we get an interest rate and policy update from the Reserve Bank of New Zealand (RBNZ).
“No change is expected in the official cash rate and we expect the same old talk about the NZD being overvalued and its level as being unjustified and unsustainable,” says a note from Tuatara Asset Management.
In the past we have seen just how heavily this talk from Governor Wheeler can weigh on the NZD.
Tuatara point out that the RBNZ is likely to ignore the fact that the NZD has dropped sharply vs the USD, down nearly 20 percent from its peak above 0.8800 in July last year.
RBNZ to Signal Interest Hikes Delays
Barclays have told clients at the head of the new week that NZD’s upside to be limited by RBNZ’s dovish tilt
“We expect any up moves in NZD to be limited given an expected dovish bias of the RBNZ in the upcoming policy meeting,” says a note to clients from the London-based bank.
The RBNZ adopted a neutral stance for policy in January, arguing that “future interest rate adjustments, either up or down, will depend on the emerging flow of economic data”.
Barclays expect the RBNZ to use similar language on Thursday as it keeps the cash rate steady at 3.5%.
That said analysts expect a dovish tilt in the policy statement, reflecting downward revisions to the inflation outlook with the forecast of interest rate hikes potentially pushed further back into late 2016.
Although the growth outlook is likely little changed, the RBNZ is likely to incorporate sharply lower oil prices into its forecast profile.
“The RBNZ is likely to note the rebound in the housing market, but we think it will place more emphasis on the negative effect of the strong NZD on the economy,” say Barclays.
“Looking at the NZ dollar it looks like the move back towards the 0.7600 area has failed for now and another period of weakness vs the US dollar lies ahead. This will be favorable to exporters wanting to convert this seasons foreign currency receipts,” say Tuatara.
ANZ Bank’s NZD Near-Term Forecasts
The following New Zealand dollar near-term forecasts are issued by the team at ANZ Bank.
It is RBNZ week, and questions as to the RBNZ’s willingness to signal downside risks will drive the NZD. ANZ does not expect the RBNZ to be able to drive NZD through the bottom of the range. Q4 manufacturing activity today is an important input in Q4 GDP. The USD having firmed considerably after payrolls should consolidate ahead of next week’s FOMC.
Expected range: 0.7310– 0.7430
0.95 is a relatively key pivot for NZD/AUD and the RBNZ and Australian employment will be the key drivers. ANZ sees no sign of Australian employment picking up and expects the RBNZ to remain “up or down”.
Expected range: 0.9480 – 0.9590
Despite EUR/USD plunging to a new 11 year low this cross was unable to break to another new post float high as NZD declined with the EUR. ANZ sees EUR/USD testing 1.05 with parity as possible, but expects NZD/USD to find support, which puts this cross at new post float highs.
Expected range: 0.6740 – 0.6900
JPY was the second strongest currency on Friday, second only to the USD, which is an unusual event on nights of USD strength.
Expected range: 88.20 – 89.60
Twin speeches by BoE Carney and the BoE Quarterly Bulletin may create some volatility, but GBP is likely to be off the radar this week with only manufacturing and industrial production on the data front.
Expected range: 0.4860 - 0.4940