CURRENCY WATCH
blames the decline on transitory factors. However, this reading may prompt a downward revision of forecast growth in FY 2017 in the next Monetary Policy Statement, due out in May, aſter the upward revision in February, from 3.8% to 4.5%. In the latest MPS, forecast growth in 2018 was still high, albeit on the decline to 3.5%, followed by a sharper expected slowdown to 2.5% in 2019. Inflation, on the other hand rose from 0.4% to 1.3% in 4Q, re-entering
the
target range (1- 3%) abandoned in 2014. Te increase, as elsewhere, was mostly due to the trend of oil prices, and in the course of the year inflation could
continue
2016, the RBNZ has reasserted that the numerous sources of uncertainty which linger at the global level call for monetary policy to remain accommodative at length, implicitly indicating that aſter the three cuts implemented last year (from 2.50% to 1.75%), no hikes should be expected at
FX
USD 0.72-0.74-0.78 on a 6m-12m- 24m horizon), in function of the gradual consolidation of the domestic growth and inflation scenario, and of the RBNZ’s likely simultaneous transition from a neutral bias to a tightening bias.
to prove rather variable, due to one- off effects generated by the trend in of food and imported goods’ prices, although in the medium term the RBNZ still expects inflation to return towards the central part of the target range. Te forecasts included in the February MPS point to a 1.5% rate this year (revised up compared to November), 1.3% the next (revised down), 1,9% in 2019 (revised up), and 2.1% in 2020.
No hikes should be expected in 2017, contrary to the course the market had started to price in January
least for the entirety of 2017, contrary to the course the market had started to price in January.
Although on the whole the outlook at the beginning of 2017 is generally brighter than it was at the end of
Terefore, we continue to expect a moderate weakening of the New Zealand dollar in the near term (towards NZD/USD 0.68-0.67 on a 1m-3m horizon), due both to a temporary variability phase of the domestic economic cycle, and to the prospect of a fed funds rate hike in June. Subsequently, we continue to forecast a recovery (towards NZD/
Against the euro, the New Zealand dollar could weaken in the near term, given the prospect of the ECB possibly ab a ndo n i n g its guidance on rates (and s p e cific a l ly the option of cutting them to levels lower than at present) at the June meeting, as opposed to confirmation of a the RBNZ’s neutral bias on the same
time horizon. Subsequently, the New Zealand dollar should
to rise back gradually, as despite the monetary policy normalisation processes undertaken simultaneously by both the RBNZ and the BCE, the rate differential will stay markedly favourable to the NZD.
Luca Mezzomo
Chief Economist Asmara Jamaleh
Economist – Forex Markets Intesa Sanpaolo
FX TRADER MAGAZINE April - June 2017 49 start
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