NZD/USD: Risks for the week ahead are to the upside, to around 0.7110 - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the NZD/USD is struggling to sustain the recent break below a technical “neckline” at 0.7080, and indeed is at risk of breaking back above it during the week ahead.

Key Quotes

“The key will be the behaviour of the US dollar. Since the US election the US dollar has outperformed almost all currencies by a good margin but is now in need of a breather. It has already priced in a strong Trump-led US economy and a Fed hike in December, so it’s hard to envisage another USD surge during the weeks ahead. If it does take a rest, then that will allow NZ’s strong fundamentals to come to the fore. Based on commodity prices, interest rates and risk sentiment, NZD/USD is around 4c undervalued. Thus, the risks to NZD/USD for the week ahead are to the upside, to around 0.7110.”

“NZ events this week are again low key, with official Stats NZ releases remaining disrupted by the recent earthquake near Wellington. ANZ business confidence will be out on Wed, but Oct building permits, Q3 building work done, and Q3 terms of trade timing is fluid. Worth watching out for is the RBNZ’s semi-annual Financial Stability Report on Wed. On the US calendar, Nov ISM and payrolls are the highlights.”

“3 months: We target sub-0.70 on an assumption the US dollar will strengthen further, driven by expectations of a stronger US economy under President Trump, and commensurately higher US interest rates.”