NZD/USD: To drop toward 0.64, before bouncing to 0.68 - Lloyds

Analysts from Lloyds Bank, expect a rate hike from the Federal Reserve in June, that would send NZD/USD toward 0.64.

Key Quotes:

“Since its 0.6350 low in mid-January, NZD has experienced a gradual appreciation against the USD. Fed Chair Yellen’s relatively dovish stance drove NZD/USD to a 9-month high, just below 0.70. This currency strength occurred despite an unexpected 25bp cut from the RBNZ at March’s policy meeting. Furthermore, Governor Wheeler and Deputy Governor Bascand continue to reiterate their view that policy needs to remain loose, given the downside risk to inflation – the RBNZ’s 2-year inflation forecast has fallen significantly since the start of the year.”

“New Zealand’s underlying economic performance is still strong –Q4 GDP exceeded expectations and the trade balance improved after a surge in exports. However, milk prices remain subdued. Given our central expectation of a rate hike from the US FOMC in June, we anticipate NZD/USD trading lower, towards 0.64. From there, as long as inflation expectations pick up, the currency pair should track back to 0.68 by end-2016.”