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The forecasts of the Currency Research Team at BNZ show the NZD/USD hovering around 0.65 through the next six months, but they are not confident enough to declare the downward trend of the past six months over.  They point out that much bad news is priced in but the global macro backdrop is challenging.

Key Quotes:  

“The NZD has been in a downward channel since April, making fresh lows each month. The early-October low of 0.6425 had held but the NZD still isn’t out of the woods yet, with threats to the downside still lingering. On a positive note, the NZD has held up well recently considering the pummelling seen in global equity markets and the fall in risk appetite.”

“We see the biggest threat to the downside for the NZD coming from a speculative attack on CNY, and increased capital outflows from China that spill over into a weaker NZD.”

“A further round of tariff increases imposed by the US on Chinese imports from 1 January and the potential of more tariffs through 2019 would add to this risk for the yuan and NZD.”

“Inflation is running stronger than the RBNZ previously projected, reducing the chance of any further rate cuts this cycle, not that we thought that likely anyway. Still, RBNZ rate hikes remain a distant prospect and NZ rates are falling further behind US rates as time goes on and this remains a clear headwind for the NZD.”

“Our forecasts are consistent with a fairly steady NZD over the next six months. On our projections, importers are  unlikely to see a return to more attractive hedging levels above 0.70 through the next 6-12 months. Exporters can afford to be patient in locking in forward cover.”