NZD to underperform the USD and AUD in 2017 – Westpac

Imre Speizer, Research Analyst at Westpac, suggests that in a year laden with risky events, they expect the NZD to underperform the USD and AUD, but outperform the JPY, EUR and GBP.

Key Quotes

“NZD/USD was volatile in 2016, eking a 10c range, although it ended the year only 2% higher than where it started. Momentum is currently negative and it has potential to probe lower into the 0.6700-0.6800 area during the next few months. Technically, the wedge-shaped decline since September is incomplete.”

“The main determinant of NZD/USD in 2017, as it is much of the time, will be the US dollar. A stronger US dollar (and therefore weaker NZD/USD) is very much a consensus view (tighter US monetary policy/looser fiscal policy mix should boost the USD), and that makes us slightly nervous. For example, the US fiscal impulse could disappoint, tighter financial conditions could slow growth, and a mercantilist trade agenda could include a weaker US dollar. However, our base case is that the Fed will need to hike twice in 2017 and twice in 2018 - consistent with market pricing - and the US dollar will strengthen.”

“Absent a strong US dollar, we would certainly be more bullish on the NZD/USD’s prospects. Taking into account commodity prices, interest rates and risk sentiment, our fair value model estimates it should currently be trading closer to 0.75 than 0.70 actual. That said, mis-valuations have been larger in the past and persisted for long periods.”