NZD should respond to oil prices – Westpac

Imre Speizer, Research Analyst at Westpac, explains that NZD/USD’s strong rally over the past month has stalled, coinciding with a fall in oil prices.

Key Quotes

“There are many reasons why the NZD should respond to oil prices, including oil’s inflationary implications, its role as an agricultural input, and the US dollar’s inverse relationship with it.’

“If the fall in oil prices persists next week, the NZD will probably slip below its 0.72- 0.73 recent range.”

“The RBNZ today reaffirmed its “long time on hold” stance, which means little yield support for the NZD over the remainder of the year. Indeed, if the Fed hikes three more times over the next 18 months, the policy rate spread and therefore the 2yr swap spread will reduce to around zero.”

“That is the basis for our medium term view of NZD/USD falling to 0.68 by year end.”