NZD/USD to remain in a 0.7000-0.7220 range during the week ahead - Westpac

After a brief pop above 0.7200, NZD/USD hasn’t made any further headway despite a continuing stream of good economic news as noted by the Imre Speizer, Research Analyst at Westpac.

Key Quotes

“That is because the US dollar’s strength has trumped NZ fundamentals. We expect NZD/USD to remain in a 0.7000-0.7220 range during the week ahead, with the Fed meeting posing upside risks.”

“NZ’s event calendar this week is unlikely to ruffle the NZD, consisting of second-tier data only. We have Q3 manufacturing activity, Q3 building work, manufacturing PMI, ANZ consumer confidence, and REINZ housing market. The following week we get the next GDT dairy auction which will be watched given WMP has risen 90% since Feb. Futures pricing is predicting a 2% rise, which may not be enough to get a NZD response given last week’s +4% did not. Indeed, while there is a relationship between dairy prices and the NZD over the long run, it is weak at best over the short run.”

“There is a political event of note. Last week saw the unexpected resignation of John Key as Prime Minister after eight years in office, and following a caucus vote the previous Deputy Prime Minister Bill English takes the reins from today. Mr English has been Finance Minister for the past eight years, and is likely to maintain his relatively conservative approach to fiscal management. But the loss of a fairly popular political leader in the run up to an election does add an additional layer of uncertainty to the outlook. And at the margin, it has raised the odds of a snap election.”

“However as noted above, NZD/USD is mostly a US story at present. which means we will be watching US events closely for NZD/USD clues during the week ahead. On that score, the highlight event will be the Fed meeting on 14 Dec, with a hike a near certainty (and more than fully priced). The statement should be balanced, rather than hawkish, and officials are unlikely to lift growth or dot plot projections until more details on Trump’s tax and infrastructure plans emerge. If the US dollar pauses or pulls back in response to the FOMC announcement, then NZD/USD will rally.”

“3 months: We expect the US dollar to eventually resume its uptrend as the US economy improves further and US interest rates rise further, and the FOMC membership becomes more hawkish. That should eventually cause NZD/USD to decline to 0.70 or lower.”