NZD/USD: Target sub-0.6700 during the week ahead - Westpac

Imre Speizer, Senior Market Strategist at Westpac, notes that the US dollar has strengthened further, bouncing 4% since 2 May as this is a good part of the reason NZD/USD has fallen by 5% over the same period.

Key Quotes

“Previously skeptical markets are now entertaining the idea that the Fed could hike at any of the next few meetings, pushing the US dollar higher as a result. At the same time, markets have cooled on the possibility of the RBNZ cutting in June. If they do as we expect, NZD/USD should be surprised significant lower. We target sub-0.6700 during the week ahead.

This week’s NZ calendar is NZ calendar is light, containing only the April trade balance (Wed) and the annual Budget (Thu). Fonterra’s opening forecast for the 2017 year (on Thu) will be followed. The key US events will be the stream of Fed speeches, including Fed Chair Yellen’ (Fri).

3 months: We maintain our long-held view that NZD/USD will decline this year, targeting 0.65 by Q3. The basis for our view remains a combination of a looser RBNZ and a tighter Fed. That view was hurt by a surprisingly reluctant Fed. However recent signals are more promising, and we expect a higher Fed Funds rate by Sep. That is not fully priced, nor is an RBNZ cut in either June or August. Surprises on both fronts will be NZD/ USD negative.

1 year: Our economic fundamentals based forecast is 0.62.”