According to the Currency Research Team at BNZ, the NZD/USD pair might have found a floor around 0.65 over the near-term as Trump’s move on tariffs was more moderate than feared. They add that the risk of further escalation of US-China trade tensions remains a real threat.
“The NZD’s trend over recent months has looked ominous, with fresh lows made in May, July, August and September. The most recent low near 0.6500 came ahead of President Trump’s decision on further Chinese import tariffs, a threat that has overhung the NZD over the past couple of months. In the event, the more moderate than expected 10% tariff rate to be imposed on a further $200b of Chinese imports was less than half of the possible 25% mooted, and this has provided some near-term support for the NZD.”
“An economy tracking much stronger than the RBNZ thought reduces the chance of rate cuts over the nearterm, a probability we had already thought to be quite low. But the market still prices in a chance of rate cuts over the next year, and we’d expect this to be priced out of the curve over time. That said,
“A series of further Fed rate hikes will keep NZ-US rate spreads under pressure and remain a key headwind for any NZD recovery.”
“The NZD continues to trade at a discount to our short term fair value model estimate, which recently slipped below the 0.70 mark. We expect fundamental forces to keep weighing on that model estimate and our NZ forecasts continue to be pitched around the 0.68 mark through the next six months. Another way of expressing this is to suggest that the NZD will remain anchored in a 0.65-0.70 zone until further notice.”