Analysts at BNZ, trimmed their NZD optimism for the second half, given the escalation of US-China trade wars. They now see NZD/USD as largely confined within 0.65-0.69, but with downside risk still lingering over the short-term.
“Our NZD projections have been unusually stable, being unchanged over the past six months, even as we have recently highlighted some prevailing downside risk. We trim 1½-2 cents off our 2H19 projections, taking the average down to 0.6750, consistent with a view that the NZD largely trades within a 0.65-0.69 range.”
“Our projections for an NZD recovery over the second half, originally formulated late last year, were predicated on a generalised downturn in the USD alongside an easing in US-China trade tensions. We now abandon our assumption that US-China trade wars will be settled anytime soon.”
“The greater risk is that Trump imposes tariffs on the remaining $325bn of Chinese imports than removing recently imposed tariffs, to which China would respond with further retaliation. Since the trade war ramped up in Q2 last year, NZD performance has been closely linked to CNY. If the PBOC allowed USD/CNY to break above 7 – not currently part of our central view – then the NZD could easily sustain a clear break of USD0.65, putting last year’s low of 0.6425 under threat.”