NZD: Headwinds developing – BNZ
NZD/USD has struggled to move sustainably up through 0.73 as the recent signal of major central banks moving towards less policy accommodation has tempered risk appetite, explains Jason Wong, Senior Market Strategist at BNZ.
“These factors, alongside an RBNZ likely intent on maintaining a neutral stance, should encourage narrower NZ-global yield spreads, a headwind for the NZD for the rest of the year.”
“Our view has been that the recent NZD recovery simply reflected a bounce-back from an oversold level. In mid-May, the spot rate was nearly 8% below our short-term fair value model estimate, the greatest deviation in six years. By the end of June the valuation gap had closed to within 3%, more in line with the average deviation this year, so let’s call it roughly back to fair value.”
“NZD/EUR and NZD/GBP projections have been revised down, a reflection of the recent guidance signalled by the ECB and BoE. NZD/EUR could fall all the way to the mid-0.50s next year if the ECB continues along a path towards policy normalisation.”
“NZD/JPY looks interesting on the charts. A tug-of-war sees a flat to slightly lower profile over the next six months before recovering next year.”
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