Thoughts on the New Zealand dollar via ASB this week:
Near-term outlook
- Ongoing trade tensions and short NZD positions are expected to see the NZD continue to trade on the back foot this week. Reports over the weekend that US President, Donald Trump, is contemplating an additional USD267bn tariffs on Chinese goods (on top of the USD200bn mentioned above) is likely to keep market participants on edge.
- There is also little in the way of major NZ data this week, with attention firmly on next week's Q2 GP release (Thursday). A higher than expected Q2 GDP result could be the catalyst that sends the NZD higher again. However, interest rate announcements from the European Central Bank and Bank of England on Thursday could spark some volatility in currencies. In Australia, business confidence (Tuesday) and employment data (Thursday) could also spark some short-term volatility in AUD crosses.
Medium-term outlook
- We now have a stronger USD outlook given the solid US growth outlook, high US Terms of Trade, and the weaker Chinese and emerging market outlook. We expect the NZD to oscillate in a 65 to 71 US cent range over the forecast period. Nevertheless, the NZD TWI should remain broadly supported by a solid growth outlook, our historically-high Terms of Trade and upwardly drifting NZ interest rates.
- The NZD is expected to remain in a 90-91 Australian cent zone through to the end of next year.
- We expect the NZD to ease slightly over the projection period relative to EUR. The European Central Bank is expected to hike rates in September 2019, although slow growth in the Eurozone will limit the extent of ECB tightening.
- We also expect that Brexit risks will keep the GBP low against the NZD. Low inflation is expected to keep the BOJ on hold, with the NZD/JPY modestly strengthening over the forecast period.
