Monday, October 19, 2015

NZD/USD looks stretched, fade rallies - ANZ

FXStreet (Bali) - The ANZ NZ Economics Team reviews the latest fundamental developments in New Zealand, while calling to fade further NZD/USD rallies with a December Fed lift-off still their central view.

Key Quotes

"Recent economic developments have been something of a box of liquorice allsorts (sedate inflation, stronger NZD, balanced RBNZ Governor Wheeler comments, better fiscal numbers, the potential for a new FTA, and ongoing signs of domestic data stabilisation)."

"But while interesting, these developments are not sufficient to alter our core economic views, with the overall story being consistent with a subdued but still reasonable economic picture."

"Domestic growth prospects appear to be stabilising, but sub-trend growth still beckons. The NZD is becoming increasingly relevant for monetary policy, and sedate inflation pressures are likely."

"NZD looks stretched up here with the level now entering into the zone of renewed relevance for monetary policy. However, Fed sentiment remains the primary driver for currency markets; as long as lift-off expectations continue to be pared (assuming risk-off doesn’t develop), the NZD will be prone to grinding higher."

"We favour fading NZD rallies with a December Fed lift-off still our central view. NZD/AUD looks similarly extended around 0.94 given a fully priced RBA (circa 46 bps of cuts) versus RBNZ 30bps."

"We see additional monetary policy easing in time, but it is a 2016 story. This week is relatively quiet, with NZX futures prices suggesting the dairy market is taking its foot off the rebound accelerator, while net migration data should show another large net inflow."
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