NZD: From hero to zero - BNZ

Jason Wong, Currency Strategist at BNZ, points out that the NZD has fallen sharply over the past few weeks, which they explain by a broadly based fall in commodity prices and the US Fed (kicked off by Dudley early in the month) signalling a faster pace of monetary policy tightening than previously expected by the market.

Key Quotes

“The NZD has gone from hero to zero in a fairly short space of time, with selling pressure from late February seeing much of the year’s gains eroded. At the end of February the NZD was still the second-best performing major currency for 2017. As at the time of writing it was languishing near the bottom of the leader-board.”

“What explains the sharp turnaround in sentiment? At the beginning of the year the market was putting a lot of emphasis on positive global economic momentum, strong commodity prices and high risk appetite. This theme helped fuel a lift in the NZD.”

“From late February, the commodity price story started unravelling and that marked the beginning of a broadly-based fall in commodity prices. Significantly increased supply has meant that milk prices have underperformed, tumbling by more than other commodities, putting the NZD under the spotlight.”

“To that, we can add in the Fed’s Dudley’s comments in early March, giving a nod to an imminent rate hike and thereby signalling an increased pace of Fed tightening this year. This has helped support the USD (at least up until the Fed actually tightened today) and provided another excuse to sell commodities and the NZD.”

“It’s been a perfect storm for the NZD in the making.”

“We see a period of consolidation ahead over coming months. That said, quite possibly the high earlier in the year of 0.7375 won’t be revisited. We’d view current topside resistance being just above the 0.72 mark. Another bout of NZD weakness is expected, but more likely later in the year rather than in the weeks ahead, and we stick with our year-end target of 0.67 for now.”