The rapid weakening of economic growth outside the United States has been helping the U.S. dollar. Now, with the rest of the world economy slowing down is reasonable to think that the demand for commodities will also dry up. As a result, commodity sensitive currencies like the New Zealand dollar will be particularly vulnerable going forward.
New Zealand Dollar Forecast
The New Zealand dollar has been falling sharply against the world’s most heavily traded currencies on speculation that the Reserve Bank of New Zealand could have to cut interest rates faster than traders had previously expected. Indeed, according to overnight index swaps, which measure interest rate expectations for the next twelve months, traders expect the Reserve Bank of New Zealand to cut rates by 150 bps. Looking ahead, I expect NZD/USD to trade below 0.66 in 3 months and below 0.60 in 1 year.
New Zealand is Facing Its Biggest Challenge in More Than 20 years
The New Zealand economy has been hit by a slowdown in global growth and by rising high energy and food prices. In fact, according to Statistics New Zealand, the economy shrank in the first quarter of 2008, largely due to the impact of higher energy prices, a drought on agriculture and a slowdown in construction and household spending.
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