BNZ forecasting NZ$/A$ to get as high as 0.8700 over the medium-term, assisted by positive growth and interest rate differentials

By Kymberly Martin

NZD

The NZD slipped lower on Friday morning, but managed to stabilise in the evening, to end the week around 0.8100.

There is little on the domestic agenda this week to significantly impact on the NZD. Its fate will more likely be determined by general risk appetite and sentiment toward the USD.

In this regard, it is significant that US 10-year yields on Friday, again failed to break higher. We do not see an immediate catalyst to drive the next leg higher in US bond yields, and associated broad USD strength.

The NZD was a weaker relative to its key European peers on Friday. The NZD/GBP and NZD/EUR drifted lower to end the week around 0.5350 and 0.6260 respectively.

The NZD/AUD crept a little higher, to end the week around 0.8380. The cross has opened higher this morning, at levels not seen since January 2009. The cross now sits slightly above our short-term ‘fair-value’ range of 0.8100-0.8300.

This suggests further upside will be heavier going in the near-term. However, we see the cross heading as high as 0.8700 over the medium-term, assisted by positive growth and interest rate differentials.

For today, there are no domestic data releases. This Friday’s ANZ business survey will be the data highlight for the week. It is expected to show continued strength.

Also watch out for Thursday’s release of the RBNZ’s FX transactions for April. Governor Wheeler has previously alluded to the RBNZ ‘intervening’ during the month.

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Majors

On Friday, the AUD and NZD were the weakest performers, while the JPY and CHF were the strongest.

Our risk appetite index (scale 0-100%) was fairly stable around the 75% level at the end of the week. But European equities failed to provide positive returns despite a stronger-than-expected German IFO survey (business climate 105.7 vs. 104.4 expected).

The EUR/USD was initially boosted on the IFO results but failed to break through resistance at 1.3000, ending the week around 1.2940.

On Friday afternoon, the Japanese market responded to comments from the BoJ’s Kuroda. He commented he wanted to avoid volatility in the bond mark as much as possible, while also reiterating he had no target for the currency.

Japanese 10-year bond yields that had been heading above 0.90%, for the first time in a year, pulled back sharply to end the week at 0.83%. The USD/JPY pulled back from above 102.50 to end the week around 101.30.

Downward momentum in the AUD continued on Friday. The AUD/USD ended the week around 0.9650. The currency has opened lower this morning at 0.9630. It is now within a whisker of crucial support at 0.9580. This marked the low on the AUD/USD mid last year.

AU data this week is mostly of 2nd tier importance for currency markets. However, Thursday’s Q1 CAPEX report will be important. The report will show actual expenditure in the quarter, but also investment intentions for 2013-2014. 

These are crucial, as the RBA looks for a revival in non-mining investment to take up the slack left by the peak in mining sector investment. Elsewhere, general global risk appetite will remain a key driver of the AUD.

It is fairly quiet on the global data front today, aided by a UK Bank holiday. However the Bank of Japan will release its April meetings today, providing further insight into its intentions for monetary easing.

All its research is available here.