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The kiwi has been the worst performing G10 currency over the past three months, dropping over 3% which reflects a mix of both internal and external headwinds, though analysts at TD Securities think the backdrop should start to improve.

Key Quotes

“It is a tactical view but we think both AUD and NZD should outperform CAD (for example) over the next few weeks.”

“The economy is in good shape and a rate cut is unnecessary, while the external risk premium could start to fade. That really boils down to the fact that a lot of bad news is already well-priced into the currency (also the case for other high-beta G10 currencies). Against our HFFV gauge, NZDUSD is trading near short-term fair value.”

“Notably, fair value has corrected towards spot over the past few weeks, leaving NZD with little risk premium. A better risk backdrop would favour a weaker USD, suggesting a run towards $US0.68 for NZD in the event of a full blown correction in positioning.”