NZD/USD Fundamental Forecast – February 1, 2016

The NZD/USD added 19 points to 0.6499 after building consents printed higher than last month and traders moved back into commodity and commodity currencies. Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent yesterday, while saying further reductions may be needed with inflation set to take longer to return to the bank’s target range of 1-to-3 percent. Before the OCR review, Fonterra cut its forecast payout by 45 cents to $4.15 per kilogram of milk solids as global oversupply continues to depress dairy prices.
"The Reserve Bank opened the door for rate cuts, talking about they'd like the kiwi weaker, while Fonterra lowering their payout for the 2015/16 season - that's all negative for the kiwi," said Michael Johnston, senior dealer at HiFX in Auckland. "The kiwi's certainly fallen sharply against the Aussie and there's not many reasons to be buying kiwi at the moment."
Turbulence in global markets has made familiar local borrowers all the more appealing to Asian creditors. Chinese and other regional investors also have a growing appetite for dollar notes after the yuan devaluation in August triggered currency drops across the region and the Federal Reserve increased interest rates in December. Demand for the securities is getting a further boost as aging populations prepare for retirement, according to Western Asset Management Co.