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NZD: Profile pared but low still at 0.60 - NAB

FXStreet (Delhi) – Research Team at NAB, tweaks their NZD profile to bottom against the USD in late-2016, in line with other majors and with the RBNZ not due to consider tightening until mid-2017, they moderate NZD’s rally in later years.

Key Quotes

“Our near-term bearishness remains intact, and we remain short NZD/USD from 0.6610 heading into December’s Fed events. We’ve tweaked the timing with regard to the bottom for
NZD/USD, which we still mark at 0.60, to late-2016. That brings that profile in line with our broader USD story. We see the USD rally extending modestly through 2016.

“That we have 0.61 in Q1 2016 as opposed to 0.60 should not be interpreted as a material change in our near-term bearishness. In truth, we are not sure what level will mark the bottom for NZD, but at present, we’re loath to formally forecast a fall into the 0.50’s. NZD is relatively well-braced for a final 25bp easing from the RBNZ, and a softly-softly Fed lift-off,
both of which we expect in December. The major piece of the puzzle yet to fall into place is higher volatility.”

“A sustainable push below 0.60 would likely need to see some further deterioration in the NZ economic outlook, to the point of inviting the OCR to move to 2.00%. That might come in the form of: further falls in dairy prices, a (greater) El Nino hit to agricultural production, or a crash in Auckland’s housing market. None of these are part of our central forecasts. We see the RBNZ keeping the OCR at 2.50% (after the December easing) for an extended period.”

“We see NZD underperforming AUD over the coming 18 months, with the initial quick push up to 1.12 driven by the RBNZ’s delivery of the last 25bp easing, and the odds of RBA easing continuing to lengthen. Once the market has priced in these outcomes, we see a 1.10 – 1.20 range holding through the forecast horizon. Our AUD/NZD profile lifts into 2017, on the expectation (at this point) that the RBA will edge out the RBNZ to the first rate hike. At the moment, we formally forecast both to begin tightening in mid-2017.”

“We remain short NZD/USD, but in the midst of last week’s nasty squeeze on USD short positions, lowered the stop to our entry level, 0.6610. We’re loath to lose money on a trade we still believe in from a strategic standpoint. If our stop is triggered (and we exit the trade for no loss), we’d certainly be looking to re-enter at higher levels. NZD remains an attractive
vehicle for a long USD trade, on the expectation of heightened volatility heading into the 16 December FOMC.”

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