Predictions from the bank economics and foreign exchange teams range from US73c by the middle of the year to 76c at the end of the year.
Forecasters say this will be a US story more so than a NZ story, because the cross rate of the NZD will be relatively stable against other currencies in which we trade.
As more stability and stimulus play out in the US, stemming from a new president, renewed trade policies and vaccination against covid-19, currency markets will turn from the US dollar to other riskier currencies.
“The USD is strong in times of uncertainty and so we believe that in the medium term it has been overvalued,” BNZ senior economist Doug Steel said.
“Because 2021 looks to be better than 2020, there will be a swing away from the US and we are expecting the NZD to reach US76c by the end of the year.”
The impact of the stronger currency on our commodity prices need not be depressing.
Steel pointed out that when the farm gate milk price went over $8/kg in 2013-14 the NZD was worth more than US80c.
“Already this year we have seen good commodity prices in dairy, wood and fruit,” he said.
The Westpac team predicts the NZD will be US73c mid-2021 and 74c at the end of the year.
This season’s milk price, which senior agricultural economist Nathan Penny now expects to be $7.50, will not be adversely affected because of currency hedging.
But his $7.25 prediction for 2021-22 does show the impact of the stronger NZD.
ANZ agricultural economist Susan Kilsby says the strength of the NZ economy was part of the story for our strong dollar, although this was little consolation to our farmers.
“We think the NZD could go higher … to US74c by the end of the year,” Kilsby said.
“The main driver is global trends pushing down the value of the USD.
“Australian farmers face the same issue as the AUD has also strengthened against the USD, but the currencies of some South American exporting regions have weakened which is helping returns to farmers in Brazil and Argentina.
ASB senior economist Mark Smith says the NZD started 2021 strongly, continuing the trend appreciation seen over the latter stages of last year.
“Key short-term drivers – interest rates, export commodity prices and risk appetite – have supported a stronger NZD,” Smith said.
At US72c the NZD is above most estimates of fair value, which the ASB believes is around 70c in the short-term.
“The NZD should remain well-supported through 2021, with risk that the bout of improving global market optimism translates into a synchronised global upswing, taking the NZD along with it,” Smith said.
Downside risks to the NZD include a significant cooling in risk appetite and a weaker NZ economic outlook.
All analysts said the NZD would remain quite stable against the Australian dollar, the Euro, the British pound, the Japanese yen and the Chinese yuan.
