NZD Corporate FX Update
Our forecasts show the NZD hovering around 0.65 through the next six months, but we aren’t confident enough to declare the downward trend of the past six months over. Much bad news is priced in but the global macro backdrop is challenging.
NZD Downtrend Over?
After reaching a low of 0.6425 in early October, the NZD has recovered 1½ cents, largely supported by a softer USD dynamic and better sentiment for emerging market currencies, while a stronger NZ Q3 CPI report helped at the margin.
Headwinds Mount For The NZD
The NZD remains under pressure, reaching fresh multi-year lows and on an ominous downward trend that kicked off around mid-April. It’s not yet safe to presume that the downward trend is over. We would need to see a convincing break above 0.6730 to have a little more comfort that the trend over the past five months has been broken and that doesn’t look likely.
NZD Corporate FX Update
The NZD’s trend over recent months has looked ominous, with fresh lows made in May, July, August and September. The most recent low near 0.6500 came ahead of President Trump’s decision on further Chinese import tariffs, a threat that has overhung the NZD over the past couple of months. In the event, the more moderate than expected 10% tariff rate to be imposed on a further $200b of Chinese imports was less than half of the possible 25% mooted, and this has provided some near-term support for the NZD.
NZD Hedging: The end of the “free lunch”
The gap between NZ and US interest rates has been on a declining trend over the past four years to the point where NZ rates have now settled below US rates across the yield curve. This has implications for exporters, importers and local fund managers as they think about their hedging requirements. It also has implications for the outlook for the NZD itself, as low rates act as a depressing force; and for speculators, who now get positive carry from short NZD positions.
NZD: Long term value emerging vs USD
NZD/USD has fallen as much as 10% this year, with a steady decline from mid-April through to mid-August. While the NZD has performed better over the last couple of weeks we think it’s an appropriate time to ask the question: in a longer-term context, has the NZD overshot fair-value to the downside?