6 May 2014
NZD/USD to weaken through the year to 0.78 - BNZ
FXStreet (Bali) - Raiko Shareef, Currency Strategist at BNZ, continues to expect the NZD/USD to weaken through the year, to 0.78 by December, and 0.72 by end-2015.
Key Quotes
"We still hold the view that, in the face of improving US data, the Fed rhetoric can only keep yields subdued for so long. At the moment, high NZ-US interest rate differentials and low FX volatility make the NZD/USD appealing to carry-trade investors."
"But we note that a strengthening USD tends to be associated with rising FX volatility. In that event, the NZD/USD would be undermined from two sides – a firmer USD and declining risk-adjusted interest rate returns. Such a sharp correction would not be out of character for the NZD."
"As an aside, we remain wary that a persistently high NZ TWI will have implications for the RBNZ’s interest rate track. At these levels, there’s a good chance the Bank may refrain from hiking in June or July. This would undermine near term NZD strength."
Key Quotes
"We still hold the view that, in the face of improving US data, the Fed rhetoric can only keep yields subdued for so long. At the moment, high NZ-US interest rate differentials and low FX volatility make the NZD/USD appealing to carry-trade investors."
"But we note that a strengthening USD tends to be associated with rising FX volatility. In that event, the NZD/USD would be undermined from two sides – a firmer USD and declining risk-adjusted interest rate returns. Such a sharp correction would not be out of character for the NZD."
"As an aside, we remain wary that a persistently high NZ TWI will have implications for the RBNZ’s interest rate track. At these levels, there’s a good chance the Bank may refrain from hiking in June or July. This would undermine near term NZD strength."