NZD to fall the most against the USD in 2017 - SocGen

Analysts at Societe Generale expect NZD to fall the most against the USD in 2017 as the New Zealand remains highly exposed to a slowdown in Chinese demand, and the RBNZ won’t stay neutral in front of revived currency strength.

Key Quotes

“Short rates already point toward a much lower NZD/USD.”

“Any slowdown in Chinese demand will weigh on NZ growth and reduce the inflows, therefore weighing on the currency. We expect NZD/USD to fall to 0.64 by end-2017.”

“More RBNZ cuts in sight?

The RBNZ cut rates by 25bp for the third time of the year at its 9 November meeting. After the cut, Assistant Governor McDermott stated that currency strength is clearly unwanted, as it would weigh on trade and exert downward pressure on inflation expectations. With the RBNZ still having the highest G10 rate at 1.75%, the market could come to expect another 25bp cut next year, thereby catching up with the RBA at 1.50%. Within the 2Q17 horizon, both a hike and a cut are priced with a probability below 10%. At this stage, the interest rate differential already points towards a much lower NZD/USD, in the direction of our end-2017 forecast.”