NZD/USD Outlook: Up this week
Near term momentum has flipped to positive, raising the likelihood of this multi-week bounce extending to the 0.8100 area. Instrumental in this bounce is the market’s change of heart regarding US interest rates, global weakness expected to cause a delay in Fed tightening. That has weighed on the US dollar, thus supporting NZD/USD. There is potential for this bounce to continue for several weeks. NZ economic momentum is historically weak (Chart 2) and should rebound soon. Conversely, US data surprises should start disappointing soon. In addition, speculative positioning is approaching historical lows and should rebound soon. Longer term, though, we remain negative NZD/USD, targeting sub-0.77 by early 2015. NZ inflation will probably remain below the RBNZ’s 2.0% mid-point target until Q3 2015, keeping interest rates low, and dairy farmer payouts are at risk of another downgrade. Further, markets should start pricing in the Fed’s eventual tightening cycle by early 2015 and interest rate spread momentum should thus start to favour the USD.
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