NZD: Sticky but downward bias – ANZ

Cameron Bagrie, Research Analyst at ANZ suggests that questions around whether the Fed will hiking interest rates and a buoyant AUD (partly on expectations of an RBA hike in 2018) are expected to support the NZD until mid-2018. Beyond that, ANZ favours a modest retracement in the NZD, he further adds.

Key Quotes

“The key driving factor is a turn in the global liquidity cycle. Slowly but surely, central banks are inching towards the QE exit door. While this is not the dominant influence on currencies at present, we expect it to be a dominant theme over 2018.” 

“The RBNZ is expected to be a follower not a leader in lifting interest rates. While respectable, GDP growth is barely at trend. Two false-start tightening cycles since the GFC also urge caution. We do not expect the RBNZ to lift rates until late 2018, and then in a gradual manner.”

“In addition, New Zealand’s soft commodity basket has been elevated but looks extended when we eye supply- demand balances. That said, any turn in the NZD is expected to be modest. This is not an environment where sustained currency trends are likely to extend.”