BNZ – NZD Cross Analysis

NZD/AUD: The collapse in NZD in the past month, combined with some paring RBA easing expectations, saw the cross test 2014-lows around 0.9060. A eye-raising jump in Australia’s unemployment rate helped to alleviate the downward pressure. In addition, the RBA sounded a touch more cautious on growth in its latest set of forecasts. This should weigh on AUD, and make it more vulnerable to the expected further USD rally. We continue to favour a return toward 0.93, which is where we see the cross broadly settling over the next year.

NZD/GBP: The GBP’s strong 2014 rally looks to have run out of steam since early July. Previously unambiguously hawkish rhetoric from BoE officials, combined with a blistering pace of economy data, has given way to much more balanced commentary as the data have softened somewhat. We expect market exuberance around GBP to remain capped, allowing NZD/GBP to find its footing around the 0.50 mark, which remains our end-Sept target.

NZD/EUR: The EUR continues its seemingly inexorable slide, as deteriorating economic data bolsters the case for the ECB to take further monetary action. Of course, the crisis in Ukraine, on the euro-zone’s eastern border, has been a tailwind for this decline. Investors are concerned that sanctions will hurt significant bilateral trade flows. ECB President Draghi noted that the Bank is working hard to prepare for asset-backed security purchases, should it become necessary to provide more stimulus. We are cautious on Europe’s deterioration, but remain comfortable with our year-end target of 0.61.

NZD/JPY: After a brief spurt higher in late July, USD/JPY has settled back into its well-worn range around ¥102. We still believe that JPY will weaken into year-end, especially with BoJ officials recently sounding less confident about the pace of the Japanese economy. Certainly progress has stalled in terms of achieving the BoJ’s 2% inflation target. While the cross has fallen faster than we anticipated in the year to date, we do not expect it to progress much further south. Our year-end target remains 86.00.

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