The NZD/USD pair year-end target for 2019 at BNZ has been revised down significantly to 0.62. They point out the New Zealand Dollar remains at the whim of US President Trump and warn that one tweet could change the calculus considerably.

Key Quotes:

“We consider President Trump’s tweet at the end of last week, which escalated the US-China trade war, as a game changer for our NZD forecasts. Our prior assumption was that a ceasefire in the trade war, followed by an eventual trade deal later this year or early next year, would help support a mild recovery in the NZD. That no longer looks like a central forecast.”

“With USD/CNY breaking 7 this week, we now see the path eased towards 7.40 by year-end. Since the trade war began in earnest early-2018, the NZD and CNY ave been closely linked, so a weaker yuan suggests a weaker NZD.”

“The RBNZ factored in the risks about the global economic outlook for its rates decision this week and opted for a larger than expected 50bps rate cut. While the NZD fell significantly after the announcement, much of this reflected the market being wrong-footed. At this juncture, the low in the OCR projected by the OIS curve is around 63bps, just over 20bps lower than a week ago.”

“Our new USD/CNY forecasts project the yuan to hit 7.40 late-2019, early-2020. Our ready reckoner suggests that this level is consistent with the NZD anchored around USD0.60-0.63. We have pitched our new year-end forecast around the middle of this range, near USD0.62.”