#NZDUSD Medium / Long term Outlook and Positioning

A brief description of the fundamentals of #NZD and #USD can be found on this post:

http://fxrambler.blogspot.gr/2017/12/nzd-basics.html

The charts of the pair are at the moment as follows:

#NZDUSD H4

#NZDUSD Daily

#NZDUSD Weekly

The outlook given to the pair by various institutional researchers is as follows:

CIBC

q1 0.7, q2, 0.71. q3 0.71. q4 0.72

Westpac

q1 0.67, q2, 0.66. q3 0.64. q4 0.63

Scotiabank

q1 0.73, q2, 0.73. q3 0.74. q4 0.74

NAB

q1 0.69, q2, 0.69. q3 0.70. q4 0.70

Citi

They expect #NZD to recover 

UBS

They consider it undervalued. 0.76 by q4

ANZ 

q1 and q2 at around 0..73, and sliding to 0.68 by q4

Morgan Stanley

q1 0.68, q2, 0.68. q3 0.64. q4 0.61

Barclays

q1 0.71, q2, 0.72. q3 0.73. q4 0.74

Credit Agricole

q1 0.68, q2, 0.70. q3 0.72. q4 0.74

Societe Generale

q1 0.72, q2, 0.73. q3 0.74. q4 0.74

Nomura 

They see #NZD underperforming
BNZ
q1 0.68, q2, 0.68. q3 0.69. q4 0.70

Mathematical models based on statistics and historical data give an outlook of a range at around 0.68 0.69

It is obvious that there is a great divergence in the opinions between the research teams.  And this is expected since the fundamentals could point to either direction.

The range in which these future projections move can be seen below:

As far as the long term EMAs are concerned, it can be seen form the charts at the top,  that no trend reversal can be identified.  

Positioning against the current established trend, would be based mainly on the following assumptions:

#NZD is currently undervalued mainly because of politics and this uncertainty will fade away.

Economic data in the coming quarters will support its strengthening.

These two assumptions are not judged to be enough to make such a drastic move.

If the following assumptions are added to the "equation":

#USD is not expected to depreciate. At least not in any considerable and most importantly sudden way.

No sudden moves are expected in the pair towards any direction.

Economic data coming form New Zealand is not likely to support any major moves towards the buy direction.

The range of price move expected is relatively narrow, and it will probably be gradual.

The conclusion is that  positioning in the medium to long term should be short, in a rather aggressive way.

  

#NZD basics

The last few months #NZD values dropped considerably in relation with most other currencies.  Various explanations can be given for that, some common, some individual for each pair, but the main factor that affected #NZD was political (and almost all research teams agree to that).  The elections and the change in Government affected #NZD heavily.

What will be the outlook of #NZD against other currencies is matter of debate and opinions between researchers teams vary.
Before mentioning the future outlook given by some institutional research teams, some factors that are very likely to influence #NZD will be mentioned.

• FED starting December 2017 will increase its rate.  This is probable to happen once or even twice again in 2018. 
• RBNZ is not likely to move its interest rate any time soon.
• A change in RBNZ's mandate via an introduction of an employment component remains a possibility.
• The possible introduction of a rate setting  committee in RBNZ also remains unclear.  So Central Bank's independence is a worrying factor for the markets.
• GDP growth is expected to be lower in 2018.
• Housing market is expected to be weak.
• Political uncertainty may continue in 2018.

Most research teams generally agree to these factors, but they differ greatly on the particular weight of each one on #NZD.
Some consider it as undervalued and they see its behavior the last days as he beginning of new trend, and other see it as a "spike" in the charts and an opportunity to enter long - term short positions.

A brief long -term outlook of the currencies traded against #NZD (of the pairs that will be examined here) is as follows:

#EUR
The #EURO area is producing solid economic data and this is expected to continue for the next quarters.  Although ECB's steps towards normalization are slow and the rate is not expected to change until the last quarter of 2018, the language of the Bank is likely to change earlier.  As far as politics are concerned, after Brexit and the #EUR crisis markets are more resilient and flexible, and much more confident towards the EU.

#USD
US data is also solid and is expected to be the same in 2018.  Factors like the possible rate hikes, the corporate tax, soft current account, midterm elections, a focus of the market in the Euro, etc are factors that cannot be easily priced in.  They could drive #USD up or they could lead to a small depreciation.  If the latter happens, it is not expected to be something dramatic.
Trumpnomics and erratic political behavior is and will remain a concern for the markets.

#JPY
BOJ is not likely to change its policy especially after the result of the elections.  Abenomics are likely to continue.
However, markets are starting to consider the "reversal rate" effects on banking and on the economy in general.  Although  BOJ has stated that they do not see any serious danger at the moment, even a slight change in their rhetoric in the next months signalling that edging away from its current policy is a possibility, could lead to reversal for #JPY

#CHF
SNB continues to consider #CHF overvalued.  No change in policy is expected.  The target is around 1.20 against the #EUR.

#GBP
Uncertainty and volatility will be the characteristic of #GBP throughout the duration of the trade negotiations with the EU.  Any outlook for the long term will be purely speculative.
However, since a "no deal" or a "bad deal" scenario makes no economic sense but more importantly it makes no political sense for the pro-Brexit politicians since it would probably lead to their political demise, a collapse of the talks and hence of #GBP is considered highly unlikely.

#AUD
 A factor that will have great influence on the moves and direction of #AUD is the RBA monetary policy.  There is no indication that a rate hike will happen any time soon.  On the contrary the consensus is that if it happens it will be the end of 2018.
Commodity prices are  another factor that has heavy influence on #AUD. Analysts mostly agree that commodity prices look set to fall.  Some suggest a greater than 20% fall in the bulk Commodity Index and a greater than 25% fall in iron ore price. China's reform policies and the consequent slowdown in its industrial demand, will have an additional effect.

Based on the above, each individual #NZD pair will be discussed in a different post.