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30 Sep 2014
NZD/USD still unjustified and unsustainable? – Rabobank
FXStreet (Edinburgh) - Senior Currency Strategist Jane Foley at Rabobank assessed the ongoing weakness in the NZ dollar.
Key Quotes
“While the better tone in the USD has contributed to the fall in NZD/USD, it is not the only factor”.
“The RBNZ published data yesterday confirming that it had intervened in the market last month to depress the value of the NZD… This was the first time in over a year the central bank had intervened in the FX market, but it was the largest in size since July 2007”.
“The RBNZ has hiked interest rates no less than four times this year, and is the only developed world central bank to have commenced its tightening cycle. Higher rates were prompted by rising inflation pressures stemming from a buoyant constructive sector and a strong overseas demand for dairy products”.
“Since February, however, the prices at the Fonterra fortnight auction have dropped around 45%, in part due to soft Chinese demand. Dairy accounts for around one third of New Zealand exports and prices at the Fonterra fortnightly dairy auction are down around 45% since the February high”.
“In tandem with the fall in diary prices, confidence levels have fallen”.
“In this environment, the market has pushed out its expectations for the next RBNZ rate hike to around March next year”.
“Looking forward we see scope for further slippage in USD/NZD, albeit at a more moderate pace, towards 0.76 medium-term”.
Key Quotes
“While the better tone in the USD has contributed to the fall in NZD/USD, it is not the only factor”.
“The RBNZ published data yesterday confirming that it had intervened in the market last month to depress the value of the NZD… This was the first time in over a year the central bank had intervened in the FX market, but it was the largest in size since July 2007”.
“The RBNZ has hiked interest rates no less than four times this year, and is the only developed world central bank to have commenced its tightening cycle. Higher rates were prompted by rising inflation pressures stemming from a buoyant constructive sector and a strong overseas demand for dairy products”.
“Since February, however, the prices at the Fonterra fortnight auction have dropped around 45%, in part due to soft Chinese demand. Dairy accounts for around one third of New Zealand exports and prices at the Fonterra fortnightly dairy auction are down around 45% since the February high”.
“In tandem with the fall in diary prices, confidence levels have fallen”.
“In this environment, the market has pushed out its expectations for the next RBNZ rate hike to around March next year”.
“Looking forward we see scope for further slippage in USD/NZD, albeit at a more moderate pace, towards 0.76 medium-term”.