NZD/USD Fundamental Forecast – June 2016

The NZD/USD dipped 3.40% this month to trade at 0.6765 and is down almost 1% on the year. Kiwi economic data has been fairly consistence but the US dollar rally weighed heavily on the kiwi. Owing to the continued uncertainty of investors over the chances of a Fed interest rate hike, the US Dollar may continue to loom over both Australia and New Zealand’s economies.

Hawkish sentiment from the Fed at their last FOMC meeting has “pulses racing” according to de analysts ahead of a June meeting, where many expect Yellen and her fellow FOMC members to “bump rates” by a quarter of a percentage point. “However, any rate move will be data dependent and whether today’s figures will be convincing enough in the weeks to come remains to be seen they say.

The RBNZ’s monthly sector credit figures have been showing consistent, but not increasing growth in the amount of ‘Total Household Claims’. The household claims figure is mostly comprised of the total amount of mortgage monies outstanding, but also includes consumer credit.

For the past five months the household claims figures have grown at a seasonally-adjusted rate of 0.6% per month. Going back to and including to December 2014, there have been seasonally-adjusted monthly rises of between 0.5% and 0.7%.

To give some historic perspective, between 2003 and 2007 those borrowing totals were routinely rising by in excess of 1% a month, and by as much as 1.5%. Go back to the mid-1990s and monthly increases of in excess of 2.5% could be seen on occasions. Of course the total amount borrowed was way lower then, coming in at around only a fifth of the nearly $233 billion we now owe.

So, while the RBNZ would have been) concerned at the steady increase in borrowing figures, it may have taken some crumbs of comfort from the rate of increase not moving to match those rather more eye-watering percentages seen in previous housing booms.

The New Zealand economy is showing reasonable momentum, with households and businesses resilient in the face of offshore volatility earlier this year. We continue to expect strong population growth for the foreseeable future. Construction and tourism will remain the key drivers of solid growth for the next few years, with annual GDP growth forecast to average around 2.8% beyond 2016.

Net migration has been much stronger than expected over the past year. This will boost demand across a wide range of sectors, including retail and housing. Meanwhile, low fuel prices and rising middle class incomes in the major economies, particularly China, are supporting continued strong tourism activity. This is injecting income into regional economies.

An independent take on the New Zealand economic outlook is available exclusively to NZIER’s members in the latest Quarterly Predictions.

Inflation outlook remains subdued

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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