NZD/USD: Further downside potential to the 0.6800-0.6860 area - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the NZD/USD has stalled around in the low 0.69s after losing 5% during the past two weeks and making a two-month low at 0.6890 and a minor rebound here would be unsurprising, but beyond that they see further downside potential to the 0.6800-0.6860 area.

Key Quotes

“The main factor behind the recent decline has been the resurgent US dollar, but dairy has played a part too. Sure, it’s not the only commodity in NZ’s export basket, but it is dominant and gains the most market attention. The latest GDT dairy auction was surprisingly weak, with a number of contracts trading limit down (- 15%) or not even attracting a bid. A strong finish to this season’s NZ production is clearly weighing on prices. Another weak affair on 21 March would be more fuel for NZD bears.”

“NZ’s data calendar heats up this week, with Q4 GDP (Thu) the main act. We expect a 0.5% q/q and 3.0% y/y gain, a drop from Q3’s 3.5%. If we are proven correct, markets will probably sell NZD in response, since the median estimate is 0.7% qoq. There’s also Q4 current account (Wed), manufacturing PMI (Fri), and ANZ consumer confidence (Fri).”

“3 months: We retain a negative bias for the next few months. NZD/USD has fallen sharply during the past month, a reflection of not only the stronger US dollar, but also an accommodative RBNZ (OCR to remain at its 1.75% record low for the next two years) and, more recently, dairy price weakness.”