NZD/USD: Break above 0.7370 likely, en-route to 0.7485 - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the NZD/USD has broken higher and retains decent positive momentum, such that a break above 0.7370 (22 Sep high) is looking likely, en-route to 0.7485.

Key Quotes

“NZ fundamentals are supportive, as is the recent slippage in the US dollar. So what could do damage to the NZD this week? In short, the RBNZ or Trump.

The main NZ event will be the RBNZ’s MPS on Thu. A 25bp rate cut to 1.75% (record low) is widely expected, but there is much uncertainty around the guidance sentence as well as any shift in the new OCR projection. The RBNZ will need to signal some possibility of further easing, otherwise the NZD will rise in response.

The US election will of course be the global focus (Wed NZ time). The base case is for a Clinton victory – which should give risk appetite a solid boost and aid the NZD vs USD, EUR and JPY – but it is far from assured as the polls tighten into the homestretch. Florida, Pennsylvania and Ohio are the key “electoral college vote rich” states to watch in the early returns.

3 months: We target 0.70, based on an assumption the Fed will hike in Dec and the RBNZ will cut in November. However the persistent backdrop of global demand for high-yielding currencies is strong - if the Fed either doesn’t hike or signals very gradual tightening, then 0.75+ is likely instead.”