From the FXWW Chatroom – The NZD/USD is well up from its cycle lows, and in many ways that is justified as RBNZ rate cuts are priced out and the curve steepens. Positioning has no doubt exacerbated the move in both rates and FX.
· We have long held a bearish bias towards the NZD/USD. However, given the shifting risks around the domestic rates outlook, it is now unlikely that our earlier 0.62 end‑2018 forecast will be achieved and we have altered our forecasts accordingly.
· That said, we are happy to retain a medium-term bearish bias. Risk appetites are in the box seat at present and we can’t rule out further improvement. But a number of factors warrant caution, not least the softer global growth picture, tightening liquidity, and the fragile political landscape.
· In addition, the local rates market has now moved to an extent where the bar for positive surprises is far higher. And together with waning export commodity prices, this should cap NZD moves.
· We retain a forecast target for the NZD/USD of 0.61, but have pushed out when we expect this to be achieved to Q3 2019. We have lifted our end-2018 forecast to 0.65. This takes our end-2018 and end-2019 forecasts for AUD/NZD (NZD/AUD) to 1.06 (0.94) and 1.15 (0.87) respectively.
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