Of the FX majors, the New Zealand dollar has been the best performer in May.
At the end of yesterday’s New York session, with NZD/USD at 0.754, the pair is up 2.9% since May 1st. By comparison, the kiwi’s closest cousin, the Australian dollar, is down 0.5% against the US dollar.
The New Zealand dollar was supported last week following much better than expected trade data from Stats NZ. The government agency released April’s numbers late on Tuesday (GMT), which showed that the country’s monthly trade surplus had increased to NZ$578 million. Ahead of the release, the median forecast of economists polled by Bloomberg was just NZ$268 million, and the previous month’s surplus was NZ$277 million.
Of the other majors, in a month of dollar weakness induced by Donald Trump’s political mischief, all but one gained against the American currency. The euro, Swiss franc, Canadian dollar and yen gained 2.6%, 2.1%, 1.5% and 0.1% respectively. The British pound, which repeatedly failed to make strides above $1.30 and has suffered from a shrinking Tory lead ahead of the UK’s general election on June 8th, has fallen by 1.1%.
Big Bank Expects NZD to Fall in Coming 6-12 months
Analysts at Citi Bank noted yesterday that improving trade, strength in dairy prices and record highs in US stocks (indicative of receding market risk) have supported New Zealand’s currency of late, but regardless are still forecasting a fall in the NZD/USD exchange rate to 0.68 in the coming 6-12 months. A move to that level would put NZD/USD at rates not seen since June 2016 and would mark a fall of 3.6% from yesterday’s close. In the short-term (this week and next), the bank also note strong resistance in NZD/USD at 0.709.
Like many others in the market, Citi were disappointed by the RBNZ’s stance at their last meeting on May 11th. In spite of surging inflation the central bank left their interest rate projections unchanged from previous estimates – projections which show no hike in New Zealand’s official cash rate until the third-quarter of 2019. The bank’s Governor, Graham Wheeler, also added that “monetary policy will remain accommodative for a considerable period.”
Higher interest rates attract funds into a nation’s currency, driving up its price, and therefore the reluctance of New Zealand’s top bankers to raise rates from their current record low of 1.75% is seen as a negative for the New Zealand dollar.
A Plan of Action
With the above in mind, it may be wise for readers in New Zealand who have plans for overseas trips or for making international payments this year, to change their New Zealand dollars now instead of later, thereby locking in current exchange rates and positioning themselves ahead of future falls in the kiwi’s value.
Consider that within the past two trading days, the New Zealand dollar has made 3-month and 2-month highs against the Australian dollar and US dollar respectively. It has also made a 1-month high against the British pound, Taiwan dollar and Singapore dollar. Against any of these currencies, now would be a good time to change money.