Weekly Forex & Interest Rate Outlook

We reached our year-end target of 0.8000 much earlier than expected but remain bearish nevertheless. Channel support dating from November 2011, currently at 0.7915, has been broken and if sustained argues for further weakness as far as 0.74. The US dollar’s 8% surge since July is the main explanation, but local factors have also featured, accounting for the NZD’s underperformance among all the majors. These local factors remain present: the RBNZ is likely to remain on hold until it sees actual inflation rising (unlikely before Q2 2015), and dairy prices will remain soft until China rebounds (early 2015 probably). In addition, RBNZ intervention risk remains high. As for the US dollar, at some point during the months ahead there will be a sharp downward correction. But for this week at least, the data flow should be US dollar-supportive.