AUD and NZD: Forecasts lowered - Rabobank

Analysts at Rabobank, in light of recent price action, lowered they forecast for AUD/USD and NZD/USD.

Key Quotes:

“Following sharp falls vs. the USD since the middle of last month, both the AUD and the NZD have recovered a little ground. There are some domestic reasons behind the softness in both the AUD and NZD since February. However, a large part of the movement in FX markets recently can be linked to a broad-based reappraisal in the outlook for the USD. Although it is likely that the greenback could consolidate or give back some of its recent gains vs. both the AUD and the NZD over the next few weeks, over the medium-term we see scope for additional USD gains.”

“Having hit our 3 month targets for both AUD/USD and NZD/USD we have lowered our forecasts moderately for both of these currency pairs. We are now targeting AUD/USD0.72 and NZD/USD0.66 on a 12 mth view.”

“While the budget giveaways are supportive for growth, these are not expected to result in a meaningful change to Australian growth and inflation forecasts. Q1 CPI registered a softer than expected 1.9% y/y, below the RBA’s 2%-3% policy target band. Although there is evidence in the inflation breakdown that core inflation is ticking higher, barring a significant increase in wage inflation, it seems likely that the RBA will remain patient on policy. Signs of a slowdown in the housing market provide further reason for the RBA to remain cautious in the coming months. March data show that new housing finance dropped to a five year low on the back of falling confidence and dropping prices in some regions. On our assumption that the RBA holds rate steady this year, we see scope for AUD/USD to maintain a downward bias towards 0.72 on a 12 month view.”

“We expect NZD/USD to drift lower towards 0.66 on a 12 month view and for AUD/NZD to edge higher towards 1.10 by year end given the RBNZ’s relatively more dovish policy position.”