NZD/USD likely to trade around 0.70 by end-2018 – Lloyds Bank

The New Zealand dollar had dropped over 7 percent against the U.S. dollar from its May high. Since then the current has found some respite. The two-year interest rate differentials continue to put NZD/USD in pressure, but the rebound in global risk sentiment and milk prices consolidating near their recent highs have aided the currency pair to stabilize, noted Lloyds Bank in a research report.

The New Zealand monetary policy is not expected to change. RBNZ’s new governor Adrian Orr has adopted a duel inflation-employment mandate. Given the current fundamentals and his comments from his first meeting in charge, in which he had stated “the direction of our next move is equally balanced, up or down” – there is little justification for a change in policy rates, stated Lloyds Bank.

The U.S. Fed is expected to hike the Fed funds rate a further three times in 2018. But, given current market prices, there is limited scope for rates to drive additional USD strength.

“Overall, we forecast NZD/USD to move to 0.70 by end-2018”, added Lloyds Bank.