NZD flat to slightly higher - BNZ

Jason Wong, Senior Markets Strategist at BNZ, notes that the NZD was flat to slightly higher last week on most of the major exchange rates they follow and the biggest movement (down) came after the headline shock of a plunge in business confidence to an 8-year low. 

Key Quotes

“The reaction was undeserving as it is typical for business confidence to shift down to an enduring lower plane under a Labour-led government, with no real implications for the economy.  Once the dust settled, the NZD showed a broadly based recovery into the end of the week.”

“Looking at the charts, the NZD has spent most of the last six weeks aimlessly trading within a USD 0.68-0.70 range against a backdrop where our model estimate has drifted down by about 1½ cents to 0.7160 – driven by slightly softer risk appetite, slightly softer NZ commodity prices and slightly narrower NZ-US short term rates.  This leaves the NZD still on the cheap side of fair value, but not significantly so.”

“Seasonal factors are normally kinder for the NZD heading into year end.  The NZD has now fallen in 9 of the last 10 Novembers but has risen in 7 of the last 10 Decembers.”

“Only second-tier economic data are released in NZ.  The biggest potential market mover from local forces is RBNZ Acting Governor Spencer’s speech tomorrow with the title, “Low inflation and its implications for monetary policy”.  In this week’s GDT dairy auction we might see an end to the run of falling prices.  The odds slightly favour an increase in average prices after falling in each of the past four auctions.”

“NZD/AUD has settled in an AUD 0.90-0.91 range after temporarily going sub 0.89 towards the end of October.  Our model estimate continues to fall, as NZ commodity prices underperform Australian commodities, and as Australian business confidence has risen, NZ confidence has fallen.  Both of these forces might only be temporary, but as long as they linger, they represent a headwind for the cross.  The RBA is expected to maintain its neutral policy bias tomorrow, while GDP figures are expected to show annual growth of 3.0%, helped by base effects.”