NZD Corporate FX Update
A marked deterioration in the global economic outlook during the current quarter has seen the NZD pummelled and we significantly revised down our projections earlier this month.
Number one on the worry list is China’s zero-COVID strategy, with President Xi steadfastly supporting this policy and staking a lot of political capital on maintaining the stance. This is sending China’s economy on a much lower growth trajectory. Lockdown restrictions are likely to ebb and flow through the rest of the year determined by the spread of Omicron. The NZD will be sensitive to this dynamic, given its strong link to global growth momentum, as well as the spillover effect from likely further yuan weakness.
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NZD downgraded; Winter is coming
We’re not in the habit of regularly changing our NZD projections, even though the temptation is there every week, especially during volatile market conditions. We haven’t changed our NZD/USD projections all year and haven’t felt the need to until recently. The 7% plunge through April, reflecting a build-up of strong negative macro forces now necessitates a complete re-think.
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NZD Corporate FX Update
After a strong recovery, we continue to see the NZD consolidating over the current quarter near 0.70, ahead of potential further upside later this year, but risks are two-sided around that view.
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NZD/JPY: Some sell signals emerge
Since the end of January, NZD/JPY has risen over 12% and early today the cross hit 84.65, its highest level in almost seven years. While this cross can be prone to large swings, this is still a remarkable performance and the technical relative strength index rose to around 87, the strongest “SELL” signal since 2005 (in which case the cross had risen a mere 10% over a slightly shorter time period). RSIs can give good signals for short-term trading opportunities.
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NZD Update: The Fog of War
One key lesson learned over many years of exchange rate forecasting is not to change currency forecasts, other than for utterly compelling reasons. Making forecast adjustments amidst the ‘fog of war’ is clearly sub-optimal and so far we have resisted making changes, but in our recent weekly reports we have indicated downside risks to our pre-existing EUR and GBP projections. With the war about to enter its fourth week, it now seems appropriate to make some tweaks.
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NZD Corporate FX Update
War in Ukraine has introduced more uncertainty about the outlook, but our projections for gradual NZD/USD appreciation this year haven’t changed.
In our last report we said we thought the NZD was oversold at the end of January, so the 3% recovery in February should be seen in that context. War in Ukraine has seen a tug of war for the NZD, with the tailwind from higher commodity prices more than offsetting the headwind from weaker risk appetite so far. During the fog of war is never a good time to be changing currency forecasts but we remain comfortable with our pre-existing projections in any case.
Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.