Currency Research

Delayed Fed easing = delayed NZD/USD recovery

Jason Wong -

For some time, the underlying assumption driving our FX forecasts has been the beginning of a US Fed easing cycle would drive broad-based USD weakness, allowing a sustained recovery for the key majors. The Fed kick starting a tightening cycle from March 2022 and expectations of tighter policy in the months leading up to that period, drove a significant upturn in the USD and a policy reversal was seen to be critical for any sustained USD downturn to prevail.

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NZD Corporate FX Update

Jason Wong -

At the beginning of the year our view was that the NZD would track within a 0.60-0.64 trading range until further notice, with the timing of the first Fed easing for the cycle a key variable in a possible topside break, while noting a bevy of headwinds for the NZD. These included macro headwinds in China, NZ’s economy remaining in a rolling recession and the possible re-election of Donald Trump in November’s US Presidential election, all of which held back our enthusiasm for NZD performance.

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NZD/JPY (finally) past its peak?

Jason Wong -

For some time, we have had a negative medium to long-term outlook on NZD/JPY. The BoJ’s ongoing ultra-easy policy stance has been a hindrance to the cross rate falling, but there is increased speculation that the central bank will soon end its negative interest rate policy, either at next week’s meeting or in April.

NZD/JPY is down nearly 3% from its recent nine-year high around 93.5. If the BoJ is indeed about to make a significant policy pivot, then NZD/JPY has probably peaked and our confidence in a weaker cross rate from here would increase.

Most likely, the BoJ will proceed very cautiously, even if it does begin to lift rates. Thus, there is no guarantee our view will play out, but we highlight that JPY is extraordinarily cheap. A hawkish pivot by the BoJ could easily disrupt financial markets accustomed to low Japanese rates and a very cheap yen.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZD/AUD: Medium-term forces to the downside

Jason Wong -

NZD/AUD has traded a narrow range since the beginning of last year of less than 5 cents (0.9019-0.9470). The sharp lift in NZ interest rates since the end of last month has seen the cross rate move to the top of its trading range. While the higher cross rate is understandable given the sharp lift in NZ-Australian interest rate spreads, our core view remains that the NZD/AUD ought to be weakening over time. Therefore, we see recent strength in the cross rate as only a short-term phenomenon.

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NZD Corporate FX Update

Jason Wong -

The NZD looks to have settled into a 0.60-0.64 trading range for now. Our projections show an eventual topside break later in the year.

Market expectations of the US Fed’s monetary policy outlook have been a key driver of FX markets over the past couple of years and our working assumption is that this relationship holds through 2024. From November 2023, increasing conviction that the Fed’s tightening cycle was over triggered a turnaround in sentiment, seeing the NZD recover back into its familiar 0.60-0.64 trading range.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.