nzd fundamentals

New Zealand Dollar US Dollar Exchange Rate Forecast

Wednesday, 03 June 2009 10:13:35 GMT  |  Jamie Saettele, Senior Currency Strategist; John Rivera, Currency Analyst; Ilya Spivak, Currency Analyst

New Zealand Dollar / US Dollar Monthly Technical Forecast



The NZDUSD is in the same position as the AUDUSD. The decline from its 2008 high was a 5 wave affair. A 3 wave rally from the low (.4890) should be nearing completion as price enters a resistance zone defined by the 50%-61.8% retracements of the larger advance (.6550-.6950).


New Zealand Dollar / US Dollar Interest Rate Forecast

The New Zealand dollar continues to have a close correlation to interest rate expectations and the increase in the interest rate expectations to 40 bps from 6 could lead to further support for the currency. The “Kiwi” has also been a beneficiary of rising commodity prices and rising global demand supports a bullish bias for the NZD/USD. The country’s tightened budget which showed a postponement of tax cuts led to a raise in the country’s outlook to stable from negative by S&P which will add to its currency’s attractiveness with other countries like the U.S. and U.K. having their ratings threatened by their quantitative easing efforts.


New Zealand Dollar / US Dollar Valuation Forecast

NZDUSD Valuation Forecast: Bearish



In a similar fashion to its Australian counterpart, the New Zealand Dollar has attracted substantial buying interest as capital shifted out of safety and back into risky assets. The bottom line is also effectively the same: a downward correction is to be expected as the current euphoria finds a terminal point upon traders’ rediscovery of the timid growth forecasts for this and next year. Equity prices remain the indicator to watch, with a meaningful reversal there likely to coincide with a downward correction in NZDUSD. Indeed, the pair is now 86.7% correlated with the MSCI World Stock Index.

What is Purchasing Power Parity?

One of the oldest and most basic fundamental approaches to determining the “fair” exchange rate of one currency to another relies on the concept of Purchasing Power Parity. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. For example, if a pencil costs €1 in Europe and $1.20 in the US, the “fair” EURUSD exchange rate should be 1.20. For our purposes, we will use the PPP values provided annually by the Organization for Economic Cooperation and Development (OECD). We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar.
 

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