20 Jun 2014
The crunch: terms of trade and the NZD - TDS
FXStreet (Bali) - According to Annette Beacher and Prash Newnaha, FX Strategists at TD Securities, traders should expect a lot of noise from the RBNZ about how the NZD should be declining along with the terms of trade from now until year-end.
Key Quotes
"Allowing for the lagged relationship between commodity price movements and actual export prices, we see a relatively steady outcome for June quarter export prices, before turning rather nasty in H2."
"Our preliminary estimates suggest a -5% correction in export prices for the Sep quarter and another –2% fall for the Dec quarter (assuming dairy prices don’t re-accelerate)."
"Translating into the terms of trade implies a lift of +0.5%/quarter for Q2, ahead of –5%/quarter for Q3 and –3%/quarter for Q4 and in annual terms, implies a sharp fall from the 20%/year peak of late 2013 to –51⁄2%/year by year-end."
"If the NZD followed suit (and wouldn’t the RBNZ like to see that) our terms of trade correction would see the NZD falling to USD0.67 by year end. In contrast, our year-end forecast of USD0.80 assumes that the NZD remains a carry-trade currency favourite well into 2015, not dissimilar to the 2011/12 experience."
"Subsequently, we expect a lot of noise from the RBNZ about how the NZD “should be declining along with the terms of trade” from now until year-end."
Key Quotes
"Allowing for the lagged relationship between commodity price movements and actual export prices, we see a relatively steady outcome for June quarter export prices, before turning rather nasty in H2."
"Our preliminary estimates suggest a -5% correction in export prices for the Sep quarter and another –2% fall for the Dec quarter (assuming dairy prices don’t re-accelerate)."
"Translating into the terms of trade implies a lift of +0.5%/quarter for Q2, ahead of –5%/quarter for Q3 and –3%/quarter for Q4 and in annual terms, implies a sharp fall from the 20%/year peak of late 2013 to –51⁄2%/year by year-end."
"If the NZD followed suit (and wouldn’t the RBNZ like to see that) our terms of trade correction would see the NZD falling to USD0.67 by year end. In contrast, our year-end forecast of USD0.80 assumes that the NZD remains a carry-trade currency favourite well into 2015, not dissimilar to the 2011/12 experience."
"Subsequently, we expect a lot of noise from the RBNZ about how the NZD “should be declining along with the terms of trade” from now until year-end."