New Zealand Can Pull "A Trick from the Bag" and Appreciate, says ANZ

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The New Zealand Dollar can appreciate over the coming months, says one of New Zealand's biggest lenders.

ANZ Bank says it expects NZD to appreciate into year-end and extend those gains into 2025 and 2026, but there is much work to do given recent weakness.

"If our forecasts are to be achieved, clearly the Kiwi has to pull an impressive trick out of the proverbial bag given where it is now," says David Croy, a currency analyst at ANZ.

The New Zealand Dollar-U.S. Dollar exchange rate (NZD/USD) is at 0.5914 at the time of writing, but ANZ thinks it can end the year at 0.62.

All else equal, such a recovery would be reflected in other NZD crosses, posing a potential downside for the GBP/NZD and EUR/NZD exchange rates.

According to Croy, the NZD has three things in its corner: gravitational pull to fair value (which it sees at around 0.62), seasonality, and higher dairy prices.

"Seasonality is something a lot of market participants look at, because as the name implies, it tends to have consistency behind it. In the Kiwi's case, seasonal positives include summer tourism and agricultural output (much of which is exported), and it tends to be positive in December," explains Croy.

He does caution that while seasonality is encouraging, it is obviously not guaranteed.

Above: The Bloomberg seasonality matrix, image courtesy of ANZ.

Investment bank GBP/NZD consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. Featuring the median, mean, high and low points forecasted by over 30 investment banks. Please request a copy here.

Higher dairy prices are also a potential source of support, as they could boost New Zealand's foreign exchange earnings.

However, for this to happen, the positive relationship between milk prices and the currency must be reasserted, as it appears to have weakened of late.

"The picture is thus very messy, and into this period of upbeat sentiment towards the U.S. (which might not be unprecedented, but is exceptional by modern standards), we think it pays to keep an open mind," says Croy.

ANZ's forecasts call for the Kiwi Dollar to appreciate to 0.62 by year-end, 0.63 by the end of 2025 and 0.64 by the end of 2026.

NZD/GBP is forecast to end 2024 at 0.477, ahead of a move to 0.459 by year-end. This gives a move in GBP/NZD to 2.0960 and 2.18 from current levels of 2.1468.

The NZD/EUR forecast is for 0.564 be end-2024 and 0.544 by mid-2025, which gives a EUR/NZD conversion of 1.77 and 1.83 from a current level of 1.7850.