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Anti-predictions for the second half of 2015 – Part III

Today we upload the last of our anti-forecasts for the half, thus completing our compliment of five. A month in and it’s been a mixed bag to start with: some like this one today have started to work well, as has the Strong USD call. Others such as the bullish view on China have been tested with the markets going back to trade where they were in early July. But the race still has five months to run, so it is probably too early to call!

The Kiwi will NOT outperform the Aussie.

Source: Bloomberg

Source: Bloomberg

We finish with a look at across the ditch at our near neighbour – New Zealand.

Things had been going along well there as milk prices stayed relatively high and housing boomed and so did the economy, with interests having to rise to slow the economy. Australia with it’s falling iron ore prices and interest rate cuts looked more like a basket case. This helped push the AUDNZD exchange rate to near parity for the first time in nearly 30 years.

But in 2015, New Zealand has been pulled into the global commodity sell off, with its major export, milk, down 30% this year. This has seen the Reserve Bank of New Zealand (RBNZ) move from hawkish to neutral, and more recently to an easing bias, all in the space of six months.

New Zealand is now likely to make more interest rate cuts than Australia over the next year and this will keep up the pressure on the New Zealand dollar. Further into the year, New Zealand’s far greater dependence on agricultural exports than Australia could see it suffer more from the severe drought that will arise if the threatened El Nino effect materialises. This is likely to further exacerbate the currency divergence across the Tasman.

All together this suggests that change in the direction from positive to negative for the Kiwi that begun earlier this year, will continue through to end of the year at least.