© Esther Maria Reichelt
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At the current moment, the RBNZ is highly concerned in particular with respect to the dairy sector, as dairy prices continue to tumble. In my opinion, the export performance will largely depend on external demand, especially from China.
As concerns the economic situation in China, we continue to anticipate export demand to remain subdued for the time being.
The country's economy has expanded impressively in recent years. Nevertheless, the low rate of inflation and the weakening economic growth across the world, as well as the strong New Zealand Dollar pushed the RBNZ to reduce the Official Cash Rate by 25 basis points to 2.25 percent. Has the situation improved since then? If not, should we expect more rate cuts coming?
The situation has improved; growth came in strong, the labour market improved and sentiment indicators look promising for now. Still, the New Zealand Dollar matters substantially particularly for the economic and inflation outlook. Hence, the RBNZ still wants to see a weaker Kiwi, while we see that New Zealand Dollar currently trading at comparatively strong levels due to the weakness in the Greenback in light of indications for a more cautious Fed's tightening cycle. For this reason, we see a further rate cut by the Reserve Bank of New Zealand in case the Kiwi does not depreciate soon. For the RBNZ, the focus is largely on the currency.
What are your forecasts for NZD/USD, AUD/NZD and EUR/NZD for the end of 2016?
Our forecasts are currently under review. However, for the reasons discussed above, we continue to see downside potential in the value of the New Zealand Dollar. As the RBA is less verbal with respect to the exchange rate, the Aussie should outperform the Kiwi by the end of the year.