Life-n-Loans : People - Relationship - Results

Westpac NZ Research (NZ FX & IR Outlook)

NZD/USD’s near term momentum remains positive and could rise towards 0.8035 this week. Multi-month, though, we expect the 0.7709 low to be revisited.

NZD/USD Outlook: Neutral this week

Near term momentum remains positive and could rise towards 0.8035 this week. Multi-month, though, we expect the 0.7709 low to be revisited.

The main factor behind near-term NZD/USD strength has been US dollar weakness, and this could persist for the next few weeks. That is because according to our measure of sentiment towards US economic data, a period of disappointments is now likely (Chart 3). At the same time, near term momentum in the NZ economy, which has been very weak recently, is poised to bounce (Chart 2).

Longer term, though, we remain negative NZD/USD, targeting sub-0.77 by early 2015. NZ inflation is currently at the bottom of the RBNZ’s 1%-3% target band, and will probably remain below the 2.0% mid-point until Q3 2015. That will keep the RBNZ on hold until late 2015, weakening interest rate support for the NZD. In addition, the Fed’s eventual tightening cycle will cause US interest rates to rise, benefitting the USD.

Event Risk This Week: RBNZ, FOMC

The NZ data calendar’s key event will be Thursday’s RBNZ meeting – an OCR Review resulting in a one-page press release only. Given last week’s large downside surprise to the RBNZ from Q3 CPI we expect a further dovish shift compared to the September meeting, signalling it’s on hold until evidence of inflation appears. Data releases shouldn’t cause market ripples: business confidence (Wed) and building permits (Fri).

The US data calendar is highly consequential, headlined by the 29 Oct FOMC and advance Q3 GDP.The heavy data schedule also includes Q3 employment cost index, pending home sales, durable goods orders, the Richmond and Chicago business surveys and the Michigan and Conference Board consumer surveys.

Please click here to view this publication