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US dollar/New Zealand dollar analysis and forecasts 24th October 2007
Risk levels will remain critical Please add this page to your list of favourites
Market analysis
The Reserve Bank increased interest rates to 8.25% during the third quarter in a further attempt to stem inflationary pressure. The New Zealand currency will, therefore, continue to have a significant yield advantage in the short term. The overall growth indicators have been mixed, but the overall risks suggest a growing risk of a more substantial downturn in the economy as the consumer sector comes under pressure. The terms of trade should remain favourable in the short term which will help underpin the New Zealand currency.
The levels of risk aversion will remain very important and the New Zealand dollar will attract funds if there investor confidence can be sustained. Overall levels of risk aversion are likely to be higher, however, given the underlying credit risks. Overall, currency depreciation is likely over the next few months as a whole. There is also still a high risk of rapid losses given the degree of currency over-valuation.
Risk factors:
A renewed increase in global risk aversion could lead to a sharp currency drop on an exodus of short-term capital.
Another interest rate increase would support the currency
Further intervention to weaken the currency would result in renewed losses
Forecasts:
| Currency | Spot (24/10) | 1-month forecast | 3-month forecast | 6-month forecast |
| NZD/US$ | 0.7515 | 0.7250 | 0.6800 | 0.6700 |
For Sterling/New Zealand forecasts, please see Sterling cross rates