NZD/USD likely to trade around 0.70 by end-2017, says Lloyds Bank

The New Zealand dollar has been consolidating near its range highs against the U.S. dollar at around 0.73 in the last month. The stable risk environment, upward revisions to the medium-term milk price outlook by Fonterra in May and Moody’s positive review after the latest NZ government budget were supportive, noted Lloyds Bank in a research report.

However, the economic outlook is slightly more mixed. The two-year New Zealand inflation expectations have increased to their highest level since September 2014; however, the first quarter GDP growth disappointed and the trade surplus has narrowed. The recent exchange rate strength is a worry. During its June meeting, the Reserve Bank of New Zealand kept its rates on hold; however, it strengthened its dovish stance, highlighting that “policy will remain accommodative for a considerable period”.

Moreover, it still looks for a weaker currency to help rebalance growth. On the contrary, the U.S. Fed has hiked the Fed funds rate by further 25 basis points in June and is likely to do so again this year. The NZD/USD pair is expected to trade around 0.70 by the end of 2017, added Lloyds Bank.