NZD: Positive over the short-term but headwinds expected through the year - BNZ

Jason Wong, Currency Strategist at BNZ, notes that the NZD has shown signs of recovering early in the New Year and it still looks over-sold on their short term model, which has seen fair value lift to USD0.74.

Key Quotes

“We are positive on the Kiwi over the short-term but headwinds are expected to ultimately emerge through the year.”

“Political risk will be a core theme for currencies this year, with a new government in the US, elections across the key euro-area nations, Brexit risks for the UK, China’s 5-yearly leadership congress, and NZ’s own general election later in the year.”

“US monetary policy is out-of-sync with the world, with a tightening cycle underway. The RBNZ could well be the next key central bank out of the blocks later this year, while tightening prospects remain more distant than that for other major central banks. This dynamic is currently positive for NZD on the non-USD crosses, although as expectations evolve it won’t remain that way all year.”

“Domestic currency drivers are positive for the NZD, although not as positive as last year, with growth momentum expected to fade as the year progresses and the terms of trade close to peaking.”