Weekly Forex & Interest Rate Outlook

The NZD has struggled against a resurgent US dollar lately. Notwithstanding Friday’s reaction to a US payrolls report which wasn’t that bad, the US dollar has firmed in response to the hawkish Fed signals since mid-March. Additionally, economic data flow should soon turn USD-positive (Chart 3). This has pushed NZD/USD back inside its multi-year range such that 0.8600 remains a major obstacle (Chart 1). We also take note of our NZ economic data pulse model which shows the momentum of NZ economic data has slowed during the past month (Chart 2). This could cause the market to reassess its expectations of how fast and far the RBNZ will hike the OCR, in turn capping NZD/USD.