New Zealand Dollar: Forecasting Further Falls Ahead

new zealand dollarThe NZ Dollar has endured tough trading conditions in recent times; and the outlook for the NZD suggests there could be further declines ahead.

The Kiwi dollar was hammered at the start of October when the RBNZ attracted a lot of attention when it announced that it sold a net NZD521m in August.

These declines followed earlier falls when RBNZ Governor Wheeler warned that he considered the NZD to be overvalued.

All this leaves us with the view that markets are nervous when it comes to the RBNZ’s determination to push the currency lower.

“With only experience and lines in the sand for guidance, we believe that quantum finally constitutes as material intervention. The Bank’s prior net sells were NZD256m in April 2013 and NZD199m in December 2012, neither of which were taken seriously as intervention. The August sell was the largest since July 2007, at NZD1.5b, which was announced as intervention,” says Prash Newnaha at TD Securities.

Also causing concern for forex markets is Prime Minister Key who, when asked what he thought was a fair level for the NZD, said USD/NZD at around 0.65 was fair.

“There are always risks in voicing a specific number, as they tend to be absorbed by financial markets and analysts as benchmarks. Will the RBNZ intervene until the NZD reaches USD065? Highly unlikely,” says Newnaha.

We would be very surprised if we heard anything further from the RBNZ heading into the end of the year, and this should provide some support to prices going forward.

Either way, the outlook for the NZD is bearish, and TD Securities have lowered their forecasts:

“Our year-end NZD forecast of USD0.80 has morphed from unachievable to optimistic. We leave it there for now as we assess the appetite for tightening in the U.S. and the extraordinary rally in the DXY to date. Our preferred cross-rate is long AUDNZD, targeting 1.23 by mid-2015.”

Technically, More Falls Ahead for NZD

According to a recent forecast on the NZD issued by the Research Department at Blackwell Global we should expect further declines going forward.

In a note to clients Blackwell say:

“The New Zealand dollar has been trending down as of late, however yesterday saw stop loss hunters come into the market and force up the NZD against the USD in order to capture some profit. This has been met with some excitement as it now opens up the possibility of further shorts in the market.

“With yesterday’s move we have seen a solid broadening wedge appear on the NZDUSD, it’s likely that given the recent fall in commodity prices at -1.3% that we will see further drops in the NZD.

“Especially as business confidence falls in New Zealand, and traders will be quick to capitalise on the fall from grace for the rock star economy.

“Currently with a broadening wedge you should target your profit at roughly the beginning of the trend, and in this case it started all at around the 80 cent mark, so I will be looking to exit at 77 cents in the NZD. Even though it will likely fall further in the coming weeks, but there may be some volatility and shorting the NZD is expensive on the swap side.”