NZD to look at USD 0.66 sometime through the next year - BNZ

Jason Wong, Senior Markets Strategist at BNZ, explains that last week the NZD was the best performing of the majors, seeing it move to the top of the approximate USD 0.68-0.70 range it has traded in since the formation of the new government. 

Key Quotes

“The announcement of Adrian Orr as the new RBNZ Governor from late-March next year was received positively by the market, seeing further fading of the political risk premium embodied in the NZD.  Weaker than expected US core CPI and an FOMC that kept its projection for three rate hikes next year (rather than upgrade to four hikes) supported the NZD/USD rate.”

“This sees the gap between spot and our FV estimate of USD 0.7130 close to within 2%, or not statistically significant.”

“The AUD was also well supported, suggesting that a global commodity price theme was in play as well.  Strong Australian employment data further supported the AUD.  Still, the outperformance of the NZD saw the cross hit AUD 0.92, before closing the week around AUD 0.9150.”

“We have re-estimated our NZD/AUD model which sees our new short term fair value estimate lift to AUD 0.9050.  Current spot remains above fair value, but not significantly so.”

“After being re-rated lower over the past few months, our projections show the NZD spending much of the year ahead flat around USD 0.68-0.70.  In practice that means the occasional flourish into the low USD 0.70s, but relatively short-lived, and maybe a look at USD 0.66 sometime through the next year.”