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.
NZD Positioning Signal Reads Overbought?
Each week the CFTC publishes data that provide a useful gauge on net speculative positioning in currencies and other financial market variables such as commodities and US Treasuries. We normally give the data a glance and then move on quickly. However, it piques our interest when positioning gets to extreme levels – the theory being that one-sided positioning might give a good contrarian signal for the outlook.
NZD/AUD: Reverse Swing Ahead?
Our last major note on the NZD/AUD cross rate was back in August last year, where we toned down our exuberance for the cross and suggested an AUD 0.91-0.95 range through to the end of 2018. That view has largely played out apart from a downside breach late last year as NZ political risk dominated pricing, but this wasn’t sustained.
NZD/CAD: Canada (Home and) Dry?
Last week we saw intensification of concerns over US trade actions against China and the likelihood of retaliatory measures from China against the US usurped the FOMC meeting as the key driver of market price action – in equities and FX at least. And Friday night saw higher Canada CPI inflation, with all key core measures now hovering around target at 2%. The Canadian dollar outperformed both the Australian and New Zealand dollars, with CAD proving to be the best performing G10 currency, with AUD and NZD both in the bottom four.
NZD Corporate FX Update
Through 2018 so far, the NZD has met some resistance around 0.7440, with weaker risk appetite recently driving the NZD back down to 0.72, in line with our end-Q1 and Q2 targets set earlier this year. Trade protectionism has reared its ugly head again, following President Trump’s imposition of import tariffs on various products including steel and aluminium. This theme is likely to continue into the second quarter, with Trump targeting a $100bn reduction in the US trade deficit with China. We have yet to see other countries retaliate, but if Trump continues down this path then some backlash seems inevitable. However, we still don’t think that a full-on global trade war is likely and we see the real economic impact of what we would call tweaks to trade policy as limited.
NZD/JPY: The Case For Further Downward Pressure
Earlier this year (see NZD Corporate FX Update) we turned more bullish on the yen, revising our NZD/JPY forecasts significantly lower to show a trend decline in the cross through the next few years, taking it to 68 by the end of 2020. Since then we’ve already seen a 3-4% move lower in the cross from 80 to 77, moving down at a faster pace than projected (which is not unusual when it comes to currency forecasting!). In this note we flesh out our positive yen story.
Can the NZD weaken as the USD weakens?
In our last major note towards the end of January “Weak USD Threatens Our NZD Call”, the USD TWI had just fallen for the seventh consecutive week, the NZD had breached the USD 0.74 mark and we wondered aloud how much longer this could continue. As it turns out, the freefall in the USD has stopped, with the currency entering a period of consolidation. This has seen the NZD held largely within a USD 0.72-0.74 trading range over recent weeks.