In late May, we said that if the US central bank relaxes its easing bias and US yields break convincingly higher the NZD/USD pullback could extend. Clearly, this risk is playing out, although the extent and timing has caught us, and most of the market, on the hop. As a result, we have lowered our NZD/USD forecasts – to 0.7800 by year-end, from 0.8300 previously. To be sure, there is still much to underpin the local unit. Even near term, technicals and positioning appear stretched (already) and thus vulnerable to rebound. Then there are New Zealand’s economic fundamentals, which are only getting stronger (witness today’s ANZ business survey). Still, in an environment of rising volatility and USD strength the NZ dollar is going to struggle, and China bears closer attention as a macro-economic risk.
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BNZ