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The NZD has been under pressure for the majority of the June quarter and is down around 8% from its 2018 highs, points out the research team at ANZ.

Key Quotes

“The stronger USD, widening interest rate differentials, a less synchronised global growth backdrop and jittery market sentiment have all conspired to see the NZD re-rate lower.”

“Admittedly, around current levels the NZD is near the bottom of our short-term fair value range, and market positioning is now at relatively extreme short levels. That may limit further downside near-term. But we maintain a negative bias overall and believe that while our forecasts show a more modest pace of decline against the USD from here, the NZD should continue to trade in a defensive manner. We struggle to get upbeat.”

“Admittedly, for the NZD, we suspect much of this theme will play out via underperformance against funding currencies, like the JPY and EUR.”

“But beyond this, there are other forces that should also limit any meaningful NZD bounces. The domestic growth picture is starting to look more lacklustre and late cycle, and likely to keep the RBNZ cautious. The export commodity price story is also now more mature, which, while not outright NZD negative, shouldn’t drive further NZD strength. And global trade uncertainties look set to linger.”