NZD/USD to target 0.70, based on an assumption the Fed will hike in Dec - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that the NZD/USD starts this week on a soft note, thanks to a strong finish to last week by the US dollar.

Key Quotes 

“Four big events will be the key. NZ’s two events should be either neutral or supportive. First, the GDT dairy auction (Tue) is priced by futures to result in a 9% gain in whole milk powder prices. Then, Thursday’s RBNZ OCR announcement (an interim meeting) will probably keep the OCR on hold at 2.0% and continue to signal a rate cut in November. This outcome is expected by markets, but watch out for any watering down of this explicit easing signal which would cause a sharp rise in the NZD.

The US calendar’s key event is the 21 Sep FOMC announcement. A lack of FOMC consensus and a lack of compelling data likely sees rates kept on hold, but the statement should have a slight hawkish twist, with a “balanced risks” assessment inserted. The updated dot plot (rate projections) will be a dovish twist though, shifting from two hikes in 2016 to one and the median long run rate falling -25bp to 2.75%.

3 months: We target 0.70, based on an assumption the Fed will hike in Dec and the RBNZ will cut in November. However the persistent backdrop of global demand for high-yielding currencies is strong - if the Fed doesn’t hike, then 0.75+ is likely instead.

1 year: Our economic fundamentals-based forecast is 0.65.”