NZD/USD likely to fall to 0.65 by Q2 2019, says ANZ Research

The NZD/USD currency pair is expected to fall to 0.65 level by the second-quarter of 2019 as unease regarding the economic policies of a new government has weighed heavily on NZD. Such unease will remain over the coming months as the growth outlook is questioned. But domestic considerations are arguably now priced, ANZ Research reported.

A new left-leaning government and shifts in policy direction – including potentially more restrictive foreign investment and migration policies and flagged changes to the RBNZ’s mandate – have weighed heavily on sentiment.

Downside risks to the near-term growth picture have increased. Economic policy uncertainty is hitting as the economy faces headwinds from a softer housing market, and a tighter migration policy risks slowing growth further. On many levels, the move lower for the NZD is justified. Such unease will remain as the growth outlook is questioned and economic policy clarifies.

Fundamentals remain supportive, albeit with uncertainty meaning a lower range. The global growth cycle is supportive, the terms of trade are high, the RBNZ is set to hike rates in late 2018 and external balance sheet metrics are sound by New Zealand’s historical standards, at least. Growth prospects remain sound.

"While an eventual turn in the global liquidity cycle will see the NZD experience another move lower, that looks to be more of a mid to late 2018 story," the report said.

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