NZD/USD likely to decline towards 0.65 through rest of 2016

In the recent weeks, the NZD/USD pair has been swinging between 0.69 and 0.74 as a reaction to changing policy expectations around the Reserve Bank of New Zealand and the US Fed. New Zealand’s economic data has shown a small sign of recovery for now. Two year inflation expectations are hovering around all-time lows at 1.65 percent.

In the meantime, the second quarter earnings growth remained muted, while dairy prices, which are quite important for export market, continued to be under pressure. Business sentiment also remained subdued in the nation. The global demand outlook has also been a drag on the external outlook. Therefore, the New Zealand central bank is expected to retain an easing bias for monetary policy in the quarters ahead.

Also, at the same time, the US Fed is likely to hike rates in December, said Lloyds Bank in a research report. This view on the US interest rate is bolstered by the recent labor market data, stated Lloyds Bank.

“Given policy divergence implications, we anticipate NZD/USD declining through the rest of the year, towards 0.65”, added Lloyds Bank.