ANZ Research discusses NZD outlook and targets NZD/USD at 0.63 and AUD/NZD at 1.13 by end of Q3.
"The NZ dollar finished the month on a stronger footing than it started. From a fundamental perspective, however, there is reason to doubt the good times will last. For one, the NZ dollar’s rate advantage is diminishing. The RBNZ’s early moves have been more than matched by equal or bigger moves by other G10 central banks. New Zealand was first to cut rates, first out of the pandemic and first to shift away from quantitative easing and towards hiking rates. As a result, it is the first to feel the pressure of higher borrowing costs. Combined with strong nontradeables inflation, cost-of-living pressures are becoming a major issue for consumers. Housing price declines are also outstripping G10 peers. We believe this will prompt the market to start pricing downside risks for the economy and possible rate cuts," ANZ notes.
"As a consequence, we see further room to run for AUD/NZD as the Australian economy outperforms. Longer term fundamentals are also weighing on the NZD, as ongoing falls in dairy prices see further deterioration in the current account deficit. Consequently, we have reduced our year end forecast to USD0.63 from 0.66," ANZ adds.