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NZD/USD likely to trade around 0.69 by end-2017, says Lloyds Bank

In the past month, the New Zealand dollar has been the best performing developed market currency, appreciating nearly 5 percent against the U.S. dollar, noted Lloyds Bank in a research report. The stable risk environment, upward revisions to the medium-term milk price outlook by Fonterra and Moody’s positive review following the New Zealand government budget have all been underpinning the currency.

Moreover, the 2y-NZ inflation expectations and the trade surplus both rose to their highest levels since 2015 and retail sales grew more than anticipated in the first quarter. The strength in the recent exchange rate is a cause of concern for the Reserve Bank of New Zealand. During its latest meeting, the RBNZ keep its key interest rates on hold at 1.75 percent; however, it strengthened its dovish stance, highlighting that policymakers see “as much chance of a rate cut as hike” and still look for a weaker currency to aid in rebalancing growth. On the contrary, the U.S. Federal Reserve hiked its interest rates by additional 25 basis points in June and is likely to do so again in the second half of 2017.

“Given the respective central bank stances, we favour NZD/USD to end the year around 0.69”, added Lloyds Bank.

At 22:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was bullish at 78.3199, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -62.388. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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