According to the NAB FX Strategy Team, the NZD could move lower on a Trade Weighted Basis and rose modestly versus the US dollar, if there is not any serious economic shock.
“New Zealand is vulnerable to an offshore shock. Trading partner growth is slowing and inflation indicators (particularly amongst emerging markets) are weak. In the event of a serious deterioration adversely impacting asset prices, activity and commodity returns, New Zealand would suffer the consequences. But barring that eventuality, the domestic economy looks well positioned for a further period of expansion only held back by capacity constraints and slowing population growth. Given that the pace of expansion should be sufficient to maintain near-full employment and inflation at target, there will be no pressure on the RBNZ to move its cash rate any time soon. The NZD will suffer if global activity stumbles but remain well supported if not.”
“The New Zealand Dollar is expected to drift lower over the next twelve months, on a Trade Weighted Basis. A modest increase against the USD is expected to be offset by relatively significant declines against the Euro and Pound. Implicit in this is our assumption that worst case scenarios have been priced in for the UK and Europe and that trade tensions between China and the US will ease.”
“If, on the other hand, there is a serious economic shock offshore, and that elevates global risk, then a much weaker New Zealand dollar trajectory might be expected, especially against the USD.”