NZD/USD: Neutral bias, well supported at 0.6850 - Westpac

Imre Speizer, Research Analyst at Westpac, adopts a neutral bias for NZD/USD for the week ahead, seeing it well supported at 0.6850 by a sliding US dollar, as well as strong NZ fundamentals (dairy, inflation, labour) and extreme short NZD speculative positioning.

Key Quotes

“Any further US dollar weakness would push NZD/USD above 0.6950 and change our near term bias to a bullish one.”

“The NZ event calendar highlight this week is the RBNZ’s Monetary Policy Statement on Thu. We expect it to keep the OCR on hold at 1.75% but with a stronger signal that the next move will be up.”

“It will need to acknowledge how conditions have changed in the last three months, with notable positives being the jump in inflation, drop in NZD TWI, and higher dairy prices. These more than offset the cooler housing market and Q1 GDP disappointment. We expect the OCR projections to be shifted in a hawkish direction, implying a rate hike in late 2018 (compared to late 2019 in March’s MPS).”

“Three months ahead: Multi-month we see potential for the NZD’s ragged decline since September to resume and extend below 0.6800, driven mostly by the resumption of a stronger US dollar. A stronger US economy, rising US interest rates and a strong US dollar are themes which should eventually reappear this year.”