NZD/USD pair to weaken, likely to trade around 0.71 at end-2017

The New Zealand dollar, in the last three months, has rallied solidly against the U.S. dollar, peaking at a new multi-year high above 0.75, noted Lloyds Bank in a research report. The move has been underpinned by solid global risk appetite, upward revisions to Fonterra’s medium-term milk price outlook and an optimistically viewed New Zealand government budget. But addition gains might be restricted, stated Lloyds Bank.

Recently, a series of disappointing domestic data releases have put NZD/USD on the back foot. The alterations in employment for the second quarter was -0.2 percent quarter-on-quarter and inflation dropped to 1.7 percent year-on-year from 2.2 percent year-on-year. This, along with the central bank’s worries about the strength of its currency, led to the assumption that the policy rates in the nation would be kept on hold for the remainder of the year, said Lloyds Bank.

Meanwhile, the U.S. Fed is expected to continue with its path of normalizing interest rates. If this scenario plays out, the consequent narrowing in the interest rate differential between New Zealand an the U.S. is expected to see the NZD/USD pair weaken.

“We are forecasting the pair at 0.71 at year-end”, added Lloyds Bank.

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