Date: 08 Aug 2017

Australia’s NAB feels that New Zealand-specific factors should keep the NZ$, often referred to as the kiwi, on the back foot noting that “net speculative positioning recently showed a record number of long contracts in the NZD, suggesting that much of the good news story is already well priced in and the currency is vulnerable to any negative news.” Of course the Australian bank admits that if the US dollar starts to give ground again more generally then the NZDUSD exchange rate wil not be immune. However on the kiwi side of the equation, NAB thinks that “this Thursday’s Monetary Policy Statement [from the Reserve Bank of New Zealand, RBNZ] shouldn’t offer much support for the NZD.” “The underlying message,” NAB feels “will be that the RBNZ is in no hurry to join some other major central banks in looking to remove policy accommodation. In fact, [NAB] expect inflation forecasts to be reduced a little, reflecting the strength of the NZD more than offsetting any possible inflationary impulse from stronger terms of trade.” The Australian bank  also thinks that “another reason to be cautious about the NZD is the election campaign which should soon kick into gear” arguing that the most likely outcome, a coalition government, “is not necessarily an NZD-negative factor, but it throws some caution into the wind for those holding long positions.” The kiwi hit an 18-day low on Monday after an RBNZ quarterly survey showed business managers’ forecast annual inflation in New Zealand to average 1.77 per cent over the coming year, down from 1.92 per cent in the previous survey in May. Of course traders will be mindful of the negative carry incurred in being short kiwi/long US dollars but for what it’s worth NAB sees the NZDUSD down at 0.7100 by the end of September. Whether traders agree with that is another matter.

Written by Neal Kimberley, External Currency Analyst.