NZD 1H18 Review and Outlook
With the first half of the year over it’s an appropriate time to reflect on what’s gone on and the outlook for the rest of the year and beyond. The chart below shows the performance of the NZD on all the key crosses over the first half of the year. The NZD saw a broadly based fall, with the largest falls against the USD and JPY and little change against other commodity currencies like the AUD and CAD.
NZD Corporate FX Update
We have become a bit more cautious about the near term outlook for the NZD. The USD recovery that began mid-April might have more legs, with the US economy showing more growth momentum, and we have increased conviction that the Fed will continue along its path of gradually raising the Fed Funds rate.
USD Outlook: It’s Complicated
After trending down from early 2017, the USD staged a
decent counter-trend rally from mid-April through to late
May, worth about 5% on the USD TWI-majors index and
6% on the DXY. It was a broadly based rally, accentuated
by prior heavy short speculative positioning in the USD,
emerging Italian political risk that weighed on EUR, poor
data and negative Brexit headlines that weighed on GBP,
and the lack of a renegotiated NAFTA deal that weighed
on CAD. The counter-trend rally in the USD was
instrumental in seeing the NZD fall from over 0.73 to
below 0.69, itself accentuated by prior heavy long
speculative positioning that has now been cleaned out.
NZD: Enough Weakness For Now?
Market sentiment for the NZD has been poor, evidenced by the near-7% plunge since recently peaking on 12-April, from around USD 0.74 to below USD 0.69. Unjustified net long positioning near the peak has exaggerated the move, alongside the broadly based recovery in the USD.
NZD Corporate FX Update
In the near term we see the NZD sustaining the recent move lower and doing a bit of work in the 0.70-0.72 area. We’ve already seen dips below 0.70 and they should become more frequent as the year progresses alongside the continuing gradual rise in NZD headwinds.
NZD Back Down To Reality
The NZD has finally broken out of its well-established and fairly tight range held (roughly 0.72-0.74) since the first week of 2018. It has been a broadly based sell-off with the NZD down all on the major crosses. It has been a steady fall, with NZD/USD and NZD/EUR down for 9 consecutive days (on NY closes). From its peak on 12-April, the NZD has fallen by 2-4% on the various crosses.