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Jane Foley, senior FX strategist at Rabobank, points out that the RBNZ policy moves have helped to ensure that the NZD is the second worst performing G10 currency this year after the beleaguered SEK as economic headwinds remain.

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“We expect NZD/USD to retain a downward bias towards NZD/USD0.61 on a 12 month view.”

“The reaction to the RBNZ policy moves this year have not been universally supportive. Governor Orr has faced criticism that rate cuts will fuel assets prices.”

“The slowdown in growth in China has left the New Zealand economy exposed through trade flows. In July NZ goods exports dropped 5.8% y/y led by a 16% fall in milk powder, butter and cheese and a 19% plunge in logs.”

“Most recent domestic economic data highlights weakness in the manufacturing industry which shrunk -0.7% q/q last quarter. Building permits and building confidence data have also been soft and retail spending missed market expectations in Q2.”

“Adding to the negative news-flow has been the announcement that Fonterra expects losses of between NZD590mln and NZD675 mln this fiscal year. Last year Fonterra made its first ever loss. While the government announced infrastructure spending in the May budget in health and education, its critics suggest this has been accounted for by less capital spending over the years to 2021. Overall, the risks suggest that RBNZ interest rate may not yet have bottomed.”