NZD/USD likely to depreciate moderately towards 0.70 by end-2016

The NZD/USD currency pair has come back towards 0.70 after increasing to a 16-month high above 0.74 in early September. The NZD/USD pair has moved back and forth with improvements in the domestic economic outlook and alterations in market expectations of U.S. Fed tightening monetary policy.

Data released recently in New Zealand have been promising. The second quarter economic growth came within the target range, with the first quarter GDP data being revised upwardly. Moreover, business sentiment remains on its stable upward trajectory, reaching its highest level in more than one year. Prices of milk have also stayed buoyant, with the latest winning auction price at $2681/tonne.

During its recent policy meeting, the Reserve Bank of New Zealand kept its key rate on hold at 2 percent; however, it underlined worries regarding excessive rise in house prices, the upward pressure on NZD and weak inflation expectations.

However, the concern regarding the upward pressure on NZD has been eased to an extent as the market suggested possibility of a Fed hike in December has increased more than 65 percent in recent weeks, driving a period of USD strength, noted Lloyds Bank.

“Given the prevailing economic conditions, we expect moderate depreciation in NZD/USD towards 0.70 by end-2016 and 0.67 by end-2017”, added Lloyds Bank.