NZD looks set to trade into a lower 0.65-0.70 range against the dollar in 2017 - RBS

According to the analysts at RBS, the kiwi looks set to trade into a lower 0.65-0.70 range against the dollar in 2017 given the prospect of faster Fed rate hikes plus the risk of the Reserve Bank of New Zealand considering further interest rates cuts.

Key Quotes

“At its meeting on November 10, the RBNZ lowered its Official Cash Rate to 1.75% but forecast no further easing and dropped its easing bias from its statement. Assistant Governor McDermott, however, warned the trade-weighted NZD remains too strong and the central bank would consider additional interest rate cuts if necessary to bring inflation back to the mid-point of its 1-3% target range.”

“NZ inflation expectations have reached almost historic lows under the weight of excessive currency strength. In 2017 we expect the RBNZ will wait to see if Fed hikes push the kiwi’s TWI lower and help reduce downward pressure on NZ inflation. If the kiwi, however, remains stubbornly high, we think the central bank will react by cutting interest rates again. Either way, we expect NZD to underperform the USD in the year ahead.”