NZ Dollar + Aus Dollar Exchange Rate Forecasts: Lower NZD and AUD Forecast in 2015

The Australian dollar: Limited ability to rally further from here

Has the Australian dollar exchange rate complex seen its best levels of 2014? Yes suggest analysts at BMO Capital who see the AUD/USD rate sinking back towards 0.87 in 2015.

At present the current levels are on offer:

• The Australian to US dollar exchange rate is trading 0.53 pct higher at 0.9444.
• The British pound to Aus dollar exchange rate is meanwhile seen 0.36 pct lower at 1.8099.

(The above quotes are mid-market and will attract a spread from your bank when transferring money. An independent FX provider will however guarantee to under-cut your banks rate, in some cases they are able to offer up to 5% more FX.)

The ultimate driver of a lower A$ in 2015 will be the return to strength in the US dollar, a scenario many had imagined would take place in 2014.

However, a slow pace in tapering the quantitative easing programme at the US Fed has kept US bond yields under pressure and with them the dollar.

2015 should see the end of quantitative easing and the start of interest rate rises, and when this happens the US dollar should advance at the expense of the AUD, CAD and NZD.

Regarding the outlook for the Aussie, analysts say:

• We expect AUDUSD to drop to drop back down to 0.92 on a 3M to 6M horizon
• With most market participants now long of AUD the upside is pretty limited
• Correlated variables like commodity indices and interest rate differentials suggest AUD is a bit overbought
• But AUDUSD is not going to correct until Fed rate hikes start to get priced in
• We expect the RBA to deliberately lag the Fed in an effort to get AUD back down to the mid 0.80s

The New Zealand dollar is up, but it must come down

Concerning the forecast for the NZD for the next 6 months we note BMO Capital are currently pricing in a decline in the exchange rate.

• NZD/USD is currently trading at 0.8690.
• The pound sterling to New Zealand dollar exchange rate is at 1.9650.

According to forecasts the NZ dollar could head towards the 0.90 level against the US dollar.

However, 2015 will see the exchange rate decline as the US Federal Reserve starts to raise interest rates which will likely start eating into New Zealand's bond yield advantage and the rate is predicted to fall below 0.85 in 2015.

However, regarding the nearer term, BMO note:

• The RBNZ has already hiked 3 times this year (from 2.50% to 3.25%) and another 2-3 hikes are priced in
• Along with being the first rate-hike currency, NZD now stands out as the highest yielder, by far, in the G10
• New Zealand’s commodity terms of trade, like the NZD, is at a near-record level
• The RBNZ is trying to control the NZD by jawboning against it and not ruling out cash intervention
• But at present levels NZD is priced to perfection; the approach of a Fed hike and/or any deterioration in the terms of trade or RBNZ outlook will cause it to tumble as shown by our 0.83 1Y target

(The above quotes are mid-market and will attract a spread from your bank when transferring money. An independent FX provider will however guarantee to under-cut your banks rate, in some cases they are able to offer up to 5% more FX.)