NZD/USD likely to trade marginally lower this year, says Commerzbank

The Reserve Bank of New Zealand wants a lower exchange rate given the dampening impact of the stronger currency on the pace of inflation. In February, the RBNZ stated that depreciation is required in the exchange rate. The value of currency in trade-weighted terms is quite above the level that the central bank had projected in November.

Hence, the New Zealand central bank is maintaining its dovish stance in spite of all the positive signs coming from the economy, noted Commerzbank in a research report. The RBNZ projects a low key interest rate in the long term. Moreover, there are several uncertainty factors, particularly for the global economic outlook so monetary policy might have to be adjusted accordingly, according to the central bank.

The normalization of the U.S. Fed monetary policy would be aiding the Reserve Bank of New Zealand and permit the USD to gain against the NZD, but the RBNZ might find it challenging to realize its wish for a much weaker New Zealand dollar, stated Commerzbank. The high-interest level amidst a climate of low-interest rates throughout the globe is making the New Zealand dollar attractive.

Moreover, the NZD is being underpinned by the rebound in commodity markets and a more positive economic and inflation outlook in general. Thus, just a marginally lower NZD/USD rates are expected over the year, according to Commerzbank.

“On a longer horizon, as soon as signs for a normalization of RBNZ monetary policy start to emerge, the NZD should actually recover a little against the USD”, added Commerzbank.

Meanwhile, the European Central Bank would continue to be quite expansionary with negative deposit rates and its quantitative easing program. But since it is reaching the limits of its monetary policy, the EUR will not decline considerably any longer.

“We continue to expect volatile sideways trading in EUR/NZD”, said Commerzbank.