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The kiwi (NZD) has been outperforming boosted by building optimism over a stronger global economic recovery, explained analysts at MUFG Bank. They believe the fundamental macro backdrop remains favourable for a stronger NZD.

Key Quotes:

“The increased likelihood of bigger US fiscal stimulus under the Biden administration including infrastructure investment is supportive for the commodity complex more broadly as well. It supports our bullish outlook for commodity-related currencies in the year ahead”

“The NZD has been deriving support from favourable domestic developments. The New Zealand economy has been one of the least negatively impacted by the COVID crisis. Real GDP has already exceeded its pre-COVID crisis peak at the end of Q3 after a quarterly expansion of 14.0%. It stands in contrast to other major economies which are expected to take years to recover lost ground.”

“We believe the fundamental macro backdrop remains favourable for a stronger NZD. The outlook for stronger global recovery would need to be challenged more seriously to undermine support for the NZD. It also can’t be ruled out the RBNZ lower rates further in an attempt to dampen NZD strength.”