NZD/USD likely to soften to 0.67 by end-2017

The New Zealand dollar has been under pressure in the recent weeks despite certain impressive domestic economic data. The New Zealand dollar traded to a new year-to-date low below 0.6850 against the U.S. dollar. The first quarter releases of the labor market data and inflation have considerably outperformed economists’ expectations.

Significantly, the inflation accelerated above its 2 percent target rate for the first time in more than five years. Meanwhile, the Reserve Bank of New Zealand’s two-year inflation expectations measure rose to 2.2 percent, the highest level since the third quarter of 2014.

Moreover, the price of milk has partly reversed its recent drop. But despite the recent upturn in economic fortunes, the central bank of New Zealand continues to be relatively wary about its monetary policy stance. Governor Wheeler earlier implied that monetary policy will continue to be accommodative for a “considerable period” and repeated that there is little required to hike interest rates at this stage, as the underlying drivers of inflation are temporary.

“Given the central bank’s position, we forecast NZD/USD to weaken to 0.67 at end-2017”, said Lloyds Bank in a research report.