Back
28 Dec 2015
NZD: Becoming less expensive – SocGen
FXStreet (Delhi) – Alvin T. Tan, Research Analyst at Societe Generale, suggests that a combination of low inflation, fading growth momentum and weak milk auction prices has undermined the NZD this year, making it the worst G10 performer.
Key Quotes
“The valuation adjustment in the New Zealand dollar is underway and expected to continue. The currency remains overvalued.
More RBNZ easing ahead. The low interest rate environment has spawned a housing boom, which appears to have been gaining momentum lately. Business and household confidence indicators have also bounced higher recently. This has reduced expectations of an RBNZ rate cut near term, and provided support to the NZD. Disinflationary pressure however allows the RBNZ to maintain a dovish bias, as inflation has remained below the RBNZ’s band for a year now. The peak in growth momentum also appears to have passed definitively. More easing is forthcoming, which will sharpen the policy divergence with the Fed.
El Nino adding to milk price woes. The major El Nino weather pattern is expected to cause a severe summer drought in New Zealand. This could be a serious hit to growth on top of sharply lower payouts to dairy farmers.
NZD underperformance continuing. We expect the underperformance of the NZD to be repeated over 2016, and favour both short NZD/USD and long AUD/NZD. Elevated implied volatility in the FX market will also weigh on the New Zealand dollar.”
Key Quotes
“The valuation adjustment in the New Zealand dollar is underway and expected to continue. The currency remains overvalued.
More RBNZ easing ahead. The low interest rate environment has spawned a housing boom, which appears to have been gaining momentum lately. Business and household confidence indicators have also bounced higher recently. This has reduced expectations of an RBNZ rate cut near term, and provided support to the NZD. Disinflationary pressure however allows the RBNZ to maintain a dovish bias, as inflation has remained below the RBNZ’s band for a year now. The peak in growth momentum also appears to have passed definitively. More easing is forthcoming, which will sharpen the policy divergence with the Fed.
El Nino adding to milk price woes. The major El Nino weather pattern is expected to cause a severe summer drought in New Zealand. This could be a serious hit to growth on top of sharply lower payouts to dairy farmers.
NZD underperformance continuing. We expect the underperformance of the NZD to be repeated over 2016, and favour both short NZD/USD and long AUD/NZD. Elevated implied volatility in the FX market will also weigh on the New Zealand dollar.”