Via ASB in New Zealand, their thoughts on some of the key influences to impact on the NZD over 2018

(in summary)

NZD is expected to remain resilient over 2018

Positive global sentiment

  • Momentum in the global economy is being underpinned by widespread growth in Europe, Asia and North America
  • further signs that the global upswing has considerable momentum
  • IMF updated forecasts, with the outlook for global growth in 2018 at 3.9%, the strongest since 2011
  • Consensus forecasts of trading partner growth also continue to be revised up

NZ external imbalances are mild

  • strong demand for NZ export commodities
  • weaker USD has helped to push up USD-denominated export prices
  • High manufacturing capacity has restrained price increases for non-commodity imports
  • NZ goods Terms of Trade at record highs
  • strengthening tourism sector has helped underpin export incomes and boost GDP
  • NZ current account deficit has remained below 3% of GDP, and is well off the radar screens of ratings agencies and overseas creditors

USD weakness

  • broader USD index continues to hover around 3-year lows as the dollar is overshadowed by the strengthening euro and yen
  • comments by US Treasury Secretary Mnuchin on the USD dollar -"obviously a weaker dollar is good for us as it relates to trade and opportunities"- were at odds with the standard strong dollar rhetoric from US administrations with US President Trump later re-emphasising his advocacy for a strong dollar

Narrowing NZ Interest rate differentials

  • With at least two Fed hikes fully priced in for 2018, further compression for longer-term yields is likely given our view of no OCR hikes until 2019

There are the usual risks around our forecasts.

  • The NZ economy is currently in a sweet spot of solid growth and low inflation, and the value of the NZD currently largely reflects that. We remain somewhat wary, however, of the potential for an adverse shock to derail the global expansion and take the NZD down a peg or two. Asset prices could be primed for a fall as global interest rates move up. Increasing trade protectionism could also dampen the outlook despite our progress towards more trade liberalisation.


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